Evaluating a trading strategy on cTrader Copy
Age of strategy
Before anything else, we have to check whether the strategy has been around for a considerable amount of time. It is crucial because it shows how long the strategy provider can stay consistent with the performance. As a general rule, strategies with at least 6 months of proven track record are preferred.
Max balance drawdown
Account drawdown is another important factor to examine yet often overlooked by amateur investors. Think about this, to recover a 50% drawdown a trader has to make a 100% return just to get back to the initial balance. Oftentimes, traders’ egos got challenged and the desire to recover the losses as quickly as possible was born. Then, risk management gets disregarded and things go down even faster.
The win rate often garners the most attention from rookie investors/ traders. The fact is, we don’t even have to be right half of the time to make money in the markets with a positive risk-reward ratio. By employing a 3 to 1 risk-reward ratio, you can stay breakeven even with a 30% win rate. However, it is always a plus if the win rate is on the higher end.
Strategy provider’s own funds
The amount of capital the providers put into their own trading account usually shows how confident they are in their own trading abilities. We have also noticed that some providers make minimal deposits so they can go full margin and over-leverage their trading account to achieve those astronomical ROI figures.
Costs to consider
This is the portion of the profits that the strategy provider is going to receive as compensation.
Most strategy providers are taking 30% performance fees.
Volume fee is charged based on the notional value of trades taken. For instance, a strategy provider can charge $10 per million dollars traded, which is equivalent to $1 per lot.
These are the fees that strategy providers charge for managing your funds. The maximum amount a provider can charge is 10%. However, most providers on cTrader do not charge management fees.
Opportunity cost refers to the amount of potential gain missed out or loss of value that would be incurred when one option is chosen over the other alternatives. Make sure you do your due diligence when selecting a provider to follow even though you have the flexibility to stop copying and remove funds anytime.
Copy-trading could be a lucrative option for generating side income and is suitable for everyone including aspiring traders who are still learning to trade. It can also be useful for risk diversification purposes
Trading is risky and may not be suitable for all kinds of investors. Trade at your own risk. Copy strategies at your own risk.