Money Management is the process of managing the money you’re investing with ZuluTrade. It involves allocating the funds to the “signal providers” you’re following in your account settings. This is done from your account screen.
If you follow more than 1 “signal provider” you first need to decide whether to invest your funds equally across your “signal providers” or whether you want to allocate different proportions to each one. Your decision will be aligned to your risk profile. I.e. for lower risk you’ll allocate a higher proportion to “signal providers” which have generated consistent returns with low drawdown. When you’ve made that decision, you have 2 allocation options with ZuluTrade: Auto Mode or Custom Mode.
In “Auto Mode” you have to select how much risk you want to assign to each “signal provider” (a higher number means proportionally more will be allocated to this social network trader). After this you have to assign the overall risk you want to take on your account using the ZuluTrade “Risk-O-Meter”. The social trading platform will automatically allocate the capital in your account based on the historical performance and risk of the “signal providers” you selected. The account settings for maximum number of open trades will default to the maximum trades the ZuluTrade signal provider had open in the past.
Please note that if anything the Auto Mode settings are fairly optimistic and a setting of 100% should be considered extremely risky with all your initial capital at risk. Also, because the trading platform uses historical data for the calculations, the allocations will not be very accurate for “signal providers” who’ve changed their behaviour over time. E.g. “signal providers” may have reduced or increased the maximum amount of trades they open at the same time which will impact the potential future drawdown and risk.
In “Custom Mode” you have to allocate the number of lots you assign to each ZuluTrade “signal provider” manually. The default lot size will depend on your global account settings (i.e. standard, mini or micro). You can use decimals, so if your account setting is mini lots, assigning 0.1 mini lot is the same as assigning a micro lot to the “signal provider”.
If it’s easier to think in “real money” numbers, have a look at the following example:
Allocating 1 micro lot in a $ USD ZuluTrade account to a signal provider means that if they trade the GBPUSD pair you’ll make or lose $0.1 per 1 pip move.
I.e. if the GBPUSD gets bought at 1.56789 and sold at 1.56889, this means a profit of 100 pips and profit of $10 in your ZuluTrade account.
Same, if the GBPUSD was bought at 1.56789 and sold at 1.56689, this means a loss of 100 pips and loss of $10 in your ZuluTrade account.
If you allocated 1 mini lot, a 100 pip move would mean a profit or loss of $100.
If you allocated 1 standard lot a 100 pip move would mean a profit or loss of $1000.
Please note that if your account is denominated in another currency, you’d have to apply the exchange rate to this example. E.g. if your account is in £ GBP and the GBPUSD exchange rate is 1.5, a 100 pip move in the GBPUSD pair on a mini lot would mean a profit or loss of £66.66 (i.e. 100/1.5).
So, when you look at allocating your funds on the ZuluTrade social trading platform, always take into account the potential “real money” values. I.e. if you follow a “signal provider” who tells you to expect a drawdown of 1000 pips with their strategy, with 1 standard lot this means your account needs at least $10,000 of funds available to cover this drawdown without getting a margin call if (i.e. your account runs out of money). And, this is under the very optimistic assumption that this really is the maximum drawdown their strategy would ever reach and it won’t reach a higher drawdown level in the future.
The ZuluTrade Margin-Call-O-Meter provides a good indication of how risky your allocation settings are. It uses the historical data of the “signal providers” (including drawdown) together with your allocation settings to calculate an estimate of the chances that your account will get a margin call. Because it’s based on historical settings, it’s nothing more than an indicator though and even setting the bar at 50% this doesn’t guarantee your account won’t get a margin call if the performance of the “signal providers” you follow goes against the market and they reach new drawdown levels (or if they change their strategy and hence the historical info becomes irrelevant).
Maximum Open Trades Settings:
The default for this is set at the historical maximum number of trades the “signal provider” opened at the same time in the past. However, quite a few providers have been reducing the number of trades they open concurrently (to get a better ranking) and therefore they may suggest a lower number in their profile. Please note that most Signal Providers who open multiple trades at the same time will actually open these in the same currency pair and direction. I.e. they’re all part of the same overall trade and they’re just adding more to an existing position.
Stop Loss Settings:
For each provider you can set your own stop loss. While any decent “signal provider” will normally set and manage their own stops to protect their followers against complete capital loss, it’s best practise to apply your own stops in order to protect your account (especially if you’re not going to manage your ZuluTrade account on a daily basis). The best level is arbitrary and will depend on the “signal provider” you follow. Some “signal providers” clearly indicate the level they suggest you use. Otherwise, you can look up the lowest negative pip value of a single position within the trading history of the provider (you can do this by sorting the trading history by the “Low” value) . This is a good starting point, though you may want to consider adding some considerable margin to this to allow the trader’s strategy and system to perform optimally. I.e. when there’s not much historical data available, there’s no guarantee the drawdown for a single trade won’t be higher than the lowest historical value.
Once you’ve set your lot value, max open trades and stop loss you can calculate the maximum you’re risking on large market movements. E.g. 1 micro lot, 7 open trades and 300 stop level on a ZuluTrade signal provider trading the EURUSD pair means a risk of $0.1 x 7 x 300 = $210 on a 300 pip move in the EURUSD. So this is what you’re risking on 1 overall trade (because normally Signal Providers will open multiple trades in the same direction and currency pair).
Please note that when you set your own stop level you should select the “safe” box if you still want to use the “signal provider’s” stop level as well (which is normal practise).
The “safe setting” will ensure that whenever a trade is closed by the “signal provider” in their own account, it’s also closed in your account (even if you have a higher stop level set yourself). Therefore always select this unless you use your own stop levels to tweak a “signal provider’s” strategy yourself.
The ZuluGuard settings, introduced in December 2012, allow you to limit the risk per “signal provider” by entering the maximum capital loss, pips loss per single trade or open trades you’ll allow for them before you want to take an automated action. These are close all open trades (for the “signal provider”) and/or disable them from making any further trades. You can also opts to automatically replace the trader with an equal or better ZuluRanked trader (though if you want to take this serious, not sure why you’d want to let a system select traders for you automatically). Please note that you can select more than 1 option at the time. E.g. it might be useful to select “close all open trades” together with “disable the trader” to avoid them opening any new positions.
Money Management and ZuluTrade Account Settings Considerations:
- If you’re new to ZuluTrade, try your allocation settings first for a while on the free demo account, and when you’re considering following a new “signal provider” you can add and follow them from your demo account first as well. This will show the results in money terms so you know how much movement to expect per pip on the trades you copy from this “signal provider”.
- Always keep the ZuluTrade MarginCall-O-Meter or Risk-O-Meter significantly under 100% (unless you want to take large risks and fully accept that all your investment can be lost in 1 trade). If you’re following long term strategy traders (with historical drawdown of > 1000 pips) even setting it at 50% is very risky.
- Look at the maximum historical drawdown (click here to see how to calculate this) and then consider that it is almost certain this will be reached again. There’s even a high change this will be more than double in the future or even a fair change this could be 4 or more times as high with any long term strategies that add trades to losing positions (e.g. look at our Forex Cruise Control Case Study).
- Have a look at our “ZuluTrade Account Settings Calculator” to give you some additional and alternative indications on the ZuluTrade account settings you could consider using (this tool takes into account historical drawdown as discussed in the previous point).
- Consider your initial ZuluTrade investment and deposit in terms of your overall investment budget. Because ZuluTrade allows you to be extremely flexible with your risk settings (and hence trade with leverage), there’s no need to fund your account with all your capital. E.g. if you consider investing $10,000, you can start with depositing $1000 and trade with this. Doing this means that the maximum you can lose is 10% of your investment budget. As you become more familiar with ZuluTrade and build a portfolio of trusted signal providers you can gradually increase your deposit and/or accounts risk settings.
- Select the “safe” box if you set your own stop level to ensure open trades are actually still closed when trades hit the stop level of a signal provider if this is lower than your level (= better protection).
- When you select to “Follow” a “signal provider” a box will be displayed asking whether you want to open any existing open trades for this trader. While “Yes” is selected as default, you really have to consider whether you really want to do this. It’s highly likely that the price of these trades has moved already quite a bit and hence when you get in you’ll open them at a totally different level and hence when you take the ‘close’ signal for those trades your results will be different too. There’s even an argument that it’s best to only start following a “signal provider” when they have no open trades, since sometimes they may start opening new trades to cover or hedge existing open positions which you don’t have.
- Because ZuluTrade “signal providers” get paid only when they have a profitable month, some may take more risk at the end of the month to chase profits or extra commissions. You may therefore want to consider not investing in the past few days of a month and wait for the 1st day of the next month.
- Traders will have winning and losing streaks. You cannot predict which one will be next when you start your investment with the “signal provider”. However, if you phase in your investment and allocation (i.e. over a few days, weeks or months) you reduce the risk that all your allocation is invested at once just before they go on a losing run.
- To avoid that your full account might be blown by following one risky trader you should use the ZuluGuard functionality to limit the total amount of losses (i.e. risk) each “signal provider” is allowed to accumulate in your account before they get disabled and/or their open trades get closed. Alternatively you can open multiple ZuluTrade accounts since there’s no limit to the amount of accounts you can open on their social trading platform.
- When you change your allocation, make sure you close any trades still open by any “signal provider” you remove from your account.
Please note that investing with social networks and using leverage products is subject to investment risks, including possible loss of part or all of your initial investment. Investments can go up or down and you may get back less than you started with. Ask your financial advisor whether trading with ZuluTrade is for you.