How to manage risk while copy trading

Construction worker using safety equipment on girders and beams - conveying managing risks cautiously in copy trading

Copy trading involves replicating the trading decisions of strategy providers, which means that the performance of your portfolio is directly linked to the choices of others. While this can be a powerful tool for diversification and learning new trading strategies, it also exposes you as a copier to various risks, such as the emotions and biases of a strategy provider, as well as market uncertainties.

The key to mastering copy trading lies in implementing good risk management strategies that can help safeguard your trades against unexpected market fluctuations and potential losses. While there’s no foolproof method to eliminate all risks, there are several fundamental principles that you can follow to manage your risks while copy trading. 

Diversify copy portfolios

Instead of copying a single trader, diversify your copy portfolios by copying multiple strategy providers with different trading strategies. Diversification helps spread the risk across various trading styles and assets.

Set maximum equity stop loss

Although you cannot set stop loss orders on individual positions, you can set a maximum loss limit for your entire copy trading portfolio. If your portfolio reaches this limit, consider stopping copying until you reassess your strategy.

This option allows you to limit losses when copying strategies. If your equity drops below the specified level, all copying will stop, and open positions copied from the strategy provider will be closed.

Example: Your account balance is 10,000 USD, and you have set your equity setting to 9,000 USD. When your equity drops to 9,000 USD, all copying will stop, and all your copied positions will be closed. In this case, you will be risking 1,000 USD.

Adjust position size

The volume of the copied positions follows the ratio between the strategy provider’s (SP) equity and the copy trader’s (CT) equity. 

For example, if SP has a balance of 10,000 USD, and CT has equity (in the copy account) of 500 USD, the ratio is 1:20. In this case, if SP opens a 1 lot EUR/USD = volume of 100,000 EUR, on the copier’s account the opened position would be of volume 100,000/20 = 5,000 USD = 0.05 Lots. 

What this means is that the copier can ‘adjust’ the position size by the amount that the copier has in their account in relation to the SP’s amount.

Stay informed and learn continuously 

Staying informed about financial markets, trading strategies, and factors influencing asset prices is crucial. Market knowledge enables informed decision-making. Continuously educate yourself about copy trading and risk management. Understanding the mechanics and associated risks will empower you to make better choices.

Do regular reviews

As copiers, you should regularly review your copy trading settings and the consistency of the strategies’ performances. Don’t fully rely on strategy providers, especially during periods of market volatility. Adjusting settings based on market conditions and the performance of strategy providers is essential for effective risk management.

While Deriv cTrader provides the convenience of copying experienced traders, it’s essential for you to take an active role in managing your risk and portfolio. These strategies can help you limit potential losses and achieve a more balanced and responsible copy trading experience.


The information contained within this blog article is for educational purposes only and is not intended as financial or investment advice.

Deriv cTrader is not available to clients residing within the EU. 

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