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    Gate.io Blog Copy Trading: Which Copying Mode Is Suitable for You?

    Copy Trading: Which Copying Mode Is Suitable for You?

    28 November 13:52

    Since copy trading launched two copy modes, many copiers have been confused by which copying mode to choose. To be exact, copiers care most about the return and risk. So this article will explain what your return and risk will be under different copying modes.

    1.Two Copy Mode in Copy Trading: Auto-Copy Mode vs Customized Mode
    There are currently two copy modes in copy trading: Customized Mode and Auto-Copy Mode. As for Customized Mode, as the name suggests, copiers can set the leverage, copy multiplier and copy contracts by themselves, while Auto-Copy Mode is that copiers completely copy the leading parameters set by the lead trader.

    When the user chooses Auto-Copy Mode, copiers can use the same leverage as the lead trader whose maximum leverage can be set to 100, which breaks through the leverage limit in the Customized Mode and maximizes the returns but also maximize risks.

    When the user chooses "Customized Mode", although he can't achieve the same return as the lead trader due to leverage restrictions, he has more opportunities to avoid certain risks and reduce his own losses when the market is in crisis.

    To put it simply, if copiers choose the "Auto-Copy Mode", their risks and returns are completely determined by the lead trader. If copiers choose the "Customized Mode", they can adjust the risks and returns according to their actual situation.

    2.Returns And Risks Under Auto-Copy Mode
    When the copiers use the "Auto-Copy Mode", on the one hand, they may maximize their profits without the leverage limit that exists in the Customized Mode; on the other hand, they may also take risks beyond their tolerance with high leverage set by a lead trader who likes aggressive trading.

    Take the following case to analyze the returns and risks of the copiers:
    Without counting the fees,
    Assets of the lead trader: 1000U. He/She purchased A contract whose current price is 100U. If he/she wants toopen a position worth of 100000U, with the leverage set to 100, then his position margin will be 100000/100=1000U.A copier copies the lead trader with Auto-Copy Mode. Assuming that the copier invests the same margin and opens a position of the same value as the lead trader.

    As the market rises, the copier can reap high returns:If the price of contract A increases by 10%The lead trader's return: 100000*10%=10000U, and the copier will also gain 10000U, who will maximize the profit.

    Once the market falls, copiers will suffer from the same high risks as lead trader:If contract A falls by 1%,The amount of loss for the lead trader: 100000*-1%=-1000U, the copier will also lose 1000U;

    If you want to maintain the margin of the existing position to the ratio of 0.5%The margin to be maintained by the lead trader and copier: (100000-1000)*0.5%=495, if the lead trader and the copier do not continue to invest in the leading deposit, it will trigger a forced closing and a liquidation will occur. Both the lead trader and the copier will lose the contract A they purchased and their own 1000 deposit.

    It can be seen that the copier who chooses the Auto-Copy Mode may maximize the profit when the market rises. However, once the market fluctuates, copiers may suffer from the risks of liquidation event under small fluctuations in the case of insufficient funds.

    3.Copiers' Returns and Risks Under Customized Mode
    So if you choose the Customized Mode and set your own acceptable copying leverage, how will your return and risk be?

    Case study of the returns and risks of copiers:Without counting the fees,

    In the Customized Mode, the difference between the returns of copiers and lead traders,
    Suppose the copiers' leverage < lead trader's leverageThe lead traders' assets: 1000U. He/she purchased contract A whose current price is 100U, but he /she wants to open a position worth of 100000U, with leverage set to 100 and a position margin of 100000/100=1000UCopiers' assets: 500U; the copy multiplier: 0.1; copy position value: 100000*0.1=10000U. With the copying leverage set to 20, the copiers' position margin will be: 10000/20=500U.

    If the price of contract A rises by 10%
    Lead trader's return: 100000 * 10% = 10000U; lead trader's ROI: 10000/1000 = 1000%
    The copier' return: 10000*10%=1000U, the copier' ROI: 1000/500=200%
    The return difference between the lead trader and the copier: 10000-1000=9000U

    Assuming that both the lead trader and the copier have sufficient margin and the copying keeps going on
    The value of the lead trader' position: 100000+10000=110000U;
    The value of the copier's position: 10000+1000=11000U;

    If the price of contract A continues to rise by 10%,
    Lead trader's return: 110000*10%=11000U; lead trader's ROI: (10000+11000)/1000=2100%
    The copier' return: 11000*10%=1100U, the copier' ROI: (1000+1100)/500=420%
    The return difference between the lead trader and the copier: 11000-1100=9900U; the cumulative return difference: (10000-1000)+(11000-1100)=18900U
    The lead trader's position value:110000+11000=121000U; the copier's position value: 11000+1100=12100U;

    The price of contract A continued to rise by 10% again,
    The lead trader's return: 121000*10%=12100U; lead trader's ROI: (10000+11000+12100)/1000=3310%
    The copier's return: 12100*10%=1210U; copier's ROI: (1000+1100+1210)/500=662%
    The return difference between the lead trader and the copier: 12100-1210=10890U, and the cumulative return difference: (10000-1000)+(11000-1100)+(12100-1210)=29790U

    Suppose the copier' leverage > lead trader's leverage
    The lead traders' assets: 1000U. He/she purchased contract A whose current price is 100U, but he/she wants to open a position worth of 100000U, with leverage set to 10 and a position margin of 1000/100=100U.Copiers' assets: 500U; the copy multiplier: 0.1; copy position value: 100000*0.1=10000U. With the copying leverage set to 20, the copiers' position margin will be: 100/20=5U.

    Case study of the returns and risks between the lead trader and copier under Customized Mode:
    If the price of contract A rises by 10%Lead trader's return: 100000 * 10% = 100U; lead trader's ROI: 1000/100 = 100%
    The copier' return: 100*10%=10U, the copier' ROI: 10/5=200%
    The return difference between the lead trader and the copier: 100-10=90U

    Assuming that both the lead trader and the copier have sufficient margin and the copying keeps going on
    The position value of the lead trader: 1000+100=1100U;
    The position value of the copier: 100+100=110U;

    If the price of contract A continues to rise by 10%
    Lead trader's return: 1100*10%=110U; lead trader's ROI: (100+110)/100=210%
    The copier' return: 110*10%=11U, the copier' ROI: (10+11)/5=420%
    The return difference between the lead trader and the copier: 110-11=99U; the cumulative return difference: (100-10)+(110-11)=189U
    The position value of the lead trader: 1100+110=1210U; The position value of the copier: 110+11=121U;

    If the price of contract A continues to rise by 10% again,
    Lead trader's return: 1210*10%=121U; lead trader's ROI: (100+110+121)/100=331%
    The copier' return: 121*10%=12.1U, the copier' ROI: (10+11+12.1)/5=662%
    The return difference between the lead trader and the copier: 121-12.1=108.9U; the cumulative return difference: (100-10)+(110-11)+(121-12.1)=297.9U

    It can be seen that regardless of the difference in leverage between the lead trader and the copier, they will keep a same direction in return, which means if the lead trader profits, the copier will profit together. But due to factors such as the copy multiplier and different leverage, the returns and ROI will be significantly different.

    If the market fluctuates and falls, what risks will the copiers face?

    Suppose the copying leverage< lead trader's leverage
    The lead traders' assets: 1000U. He/she purchased contract A whose current price is 100U, and he/she wants to open a position worth of 100000U, with leverage set to 100 and a position margin of 100000/100=1000U
    Copiers' assets: 500U; the copy multiplier: 0.1; copy position value: 100000*0.1=10000U.
    With the copying leverage set to 20, the copiers' position margin will be: 10000/20=500U.

    If the price of contract A falls by 1%
    Lead trader's loss: 100000*-1%=-1000U; lead trader's ROI: -1000/1000=-100%
    The copier' loss: 10000*-1%=-100U, the copier' ROI: -100/500=-20%

    If you want to maintain the margin of the existing position as the ratio of 0.5%
    The margin to be maintained by the lead trader: (100000-1000)*0.5%=495U.

    If the lead trader does not continue to invest in the leading margin, it will trigger a forced liquidation and there will be a liquidation. Then the lead trader will lose the purchased contract A and his/her own margin of 1000U .The copier will also follow the lead trader in position change to have a position closing, then he will also lose the purchased contract A and the margin of 500U.

    When contract A returns to 100U, if the lead trader opens the order again with the same parameters and positions after liquidation, the copier will continue to follow him.

    After copying, the price of contract A rose by 10%,
    The lead trader's investment amount: 1000U; the position value:100000U; copiers' investment amount: 500U; the position value: 10000U
    The copier's return: 100000*0.5%=500U; cumulative return: 500-1000=-500U; ROI: -500/(1000+1000)=-25%;
    The lead trader's return: 10000*0.5%=50U; cumulative return: -100+50=-50U; ROI: -50/(500+500)=-5%;

    The price of contract A continued to rise by 0.1%,
    The lead trader's position value: 100000+500=100500U; the copier's position value:10000+50=10050U;
    The lead trader's return: 100500*0.1%=100.5U; cumulative return: -1000+500+100.5=-399.5U; ROI: -399.5/(1000+1000)=-19.98%;
    The copier's return: 10050*0.1%=10.05U; cumulative return: 10050*0.1%=10.05U; ROI: -39.95/(500+500)=-4.00%;

    The price of contract A continued to rise by 0.4%,
    The lead trader's position value: 100500+100.5=100600.5U; the copier's position value:10050+10.05=10060.05U;
    The lead trader's return: 100600.5*0.4%=402.40U; cumulative return: -1000+500+100.5+402.40=2.9U; ROI: 2.9/(1000+1000)=0.15%;
    The copier's return: 10060.05*0.4%=40.24U; cumulative return: -100+50+10.05+40.24=0.29U; ROI: 0.29/(500+500)=0.03%;

    It can be seen that if the liquidation happens to the lead trader, the copier will suffer from less losses, with no need to invest additional start-up funds to copy. After the copier re-copies the lead trader, the profit gap between the two in the initial stage will be narrowed.

    Obviously, although the returns of copying have not been maximized, copiers can still gain considerable returns. And once the market falls, users under Customized Mode can reduce the loss after liquidation to a certain extent if they choose low leverage. And if the lead trader re- starts the order, the copiers can also reduce losses relatively quickly and realize profits.

    4. how to judge which copy mode you are suitable for?
    Correct copying thinking is the premise of choosing the right copy mode. When copying, copiers often have the following wrong copying thinking:

    1. Excessive expectations for profit
    Many users will copy in the hope of having the same profits as the lead trader. But sometimes, due to the limitation of leverage or copy funds, the return of the copier is much smaller than that of the lead trader. So, in order to earn high returns, many copyers will desperate to use high leverage for copying. When the market declines, too high leverage will cause too high risk, which may wipe out the previous profits.

    2. Blindly believe in lead trader, without basic recognition of market conditions
    The market is often volatile, and no matter how superb the lead trader's trading skills are, losses may also happen due to inaccurate grasp of the market conditions. If the copier has no basic recognition of the market conditions, or is not absolutely sure of the current leading level of the lead trader he/she follows, it is recommended not to blindly follow all the parameters of the lead trader, there may be unknown risk.

    3. Misassessing his/her own ability to resist risks
    Maybe you are a risk seeker, but your preference to risk does not mean your risk tolerance. Although many copiers may be risk - preferring investors, they don't have a strong ability of anti-risk. If they choose and follow a lead trader of risk preference who sets leverage too high, the copier may face great risks in the future because they take the risk tolerance of the lead trader as his own.

    Therefore, when choosing to copy a lead trader, you need to have a correct recognition of your ability to resist risks at first, and then determine your own profit expectations. Finally, decide whether Auto-Copy Mode or Customized Mode to use after learning about the market and lead trader.

    What matters most is evaluating risk tolerance, but it is often ignored by many copiers or they don't know how to evaluate it.

    Copiers need to evaluate their own risk resistance ability from the following aspects:age;family employment and income;Your investment period and whether the investment funds will be used at any time;Whether you have relevant investment experience or not;The time you can accept about the negative fluctuations in investment, and the ratio range of your investment assets to household assets (excluding fixed assets).

    Copying is not just such a thing as one click. You should treat every indicator with caution, which is the basis to evaluate your own risk tolerance.

    After making a self-assessment, the copier is very confident in his own risk tolerance, he can increase the expectation of return by copying under Auto-Copy Mode with high leverage. Then the risk will increase while the return will also increase;

    If you think that you have an ordinary risk tolerance, it is recommended that you copy under Customized Mode with low leverage, which enables you to seek a stable and long-term return with low risk.

    To sum up, no matter which copy mode copiers choose, they must copy rationally to achieve a long term effective profit on the basis of having a very clear understanding of their own investment level, risk tolerance, and profit expectations.
    Copy Trading: Which Copying Mode Is Suitable for You?
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