Social Trading Money & Risk Management
It is important to make note that any money you invest is subject to investment risk, which includes potential loss of some or all of your initial investment amount. Financial advisors are the best people to contact to see if you should invest in social trading. Your money and risk are managed based on the choice of social trading network and platform you choose. Approaches vary from “hands on” to “hands off” money management. Below are the approaches for the major networks reviewed:
- ZuluTrade Risk & Money Risk Management
Being that this is the most open social trading platform, there are no restrictions as to how you invest or distribute your money. For a novice trader this might make it a little bit more difficult, applying the best money management approach. ZuluTrade offers automated guidance in your account controls, but getting these settings wrong could risk the entirety of your account.
- eToro Risk & Money Management
The money management approach with eToro uses the trader (Guru) and ensures that the traders you copy is proportionally replicated to the amount they take in their own account, to the amount that you allocate to the Guru. The traders can risk anywhere from 1% to 100% of their accounts on a single trade. However, you can only allocate a maximum of 20% per trader. That is the maximum amount you can lose when following a high-risk trader. With eToro you need to ensure that your trader allocation matches your risk profile. (You should allocate most if not all of your money, to low risk traders, for a low risk approach and vice versa.
- Ayondo Risk & Money Management
When using Ayondo, the risk management approach is similar to that of eToro. The amount you allocate to a trader will be traded proportionally to the traders account. If they risk 1%, then so do you. However, you may increase leverage and double it if you choose to do so. Ayondo allows you to invest all of your capital in one trader if you prefer. Just keep in mind that they actively remove traders once their trading behavior becomes erratic, which is one way they can reduce risk.
- Money Management Tips
- The traders you follow can make money whether the market goes up or down. You aren’t driven by the market, so find phase your investments in, as there is not perfect entry point. Your drive as an investor is whether the traders go on a winning or losing streak. Unfortunately, this isn’t something that you can predict, that’s why it is best to spread you risk and phase your investments over a few weeks or even months.
- Set realistic expectations and treat social trading as a high yielding savings account.
- Stick to your investment plans and don’t be alarmed if a trader informs you that you should expect a 1000 pip drawdown at certain points, and you notice a 100-pip drawdown.
- Patience is a virtue. Evaluate performance over a long period of time, not a few days or weeks.
- If you have the funds, you could consider spreading risk over two or more social trading networks to evaluate results.
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Remember that you have all the information about copy trading in our sections:
- Platforms: Information of each of the platforms of copy trading. Go to Platforms
- Guides: The best guides on copy trading. Go to Guides
- Reviews: Best reviews on copy trading platforms. Go to Reviews
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