Among forex traders, some investors are able to make a fortune in the forex market through their exceptional skills and keen insight. However, as the number of forex investors continues to grow, it is inevitable that many traders lack the ability to consistently profit in the forex market.Therefore, to meet the urgent needs of these investors, forex copy trading systems have emerged.
As the name implies, a forex copy trading system is designed for copying trades. Investors using this system do not need extensive professional knowledge or advanced trading skills; they simply need to follow the trades of forex traders who possess these abilities to profit alongside them.Thus, we can simply understand the specific process of a forex copy trading system as follows: a highly skilled forex trader (the leader) executes a trade; upon receiving the signal, the copy traders using the system quickly execute the same trade, ensuring to the greatest extent possible that the win rate for both the copy traders and the leader remains the same.
There are generally two types of forex copy trading systems: MAM and PAMM.
MAM (Multi-Account Management) is a system in which accounts are independent of one another—that is, the accounts of the lead trader and the followers are separate. So how does copy trading work?In this system, the forex trading leader simply needs to enter the total number of lots they wish to trade, and the system will allocate those lots to the followers’ accounts according to predetermined rules. For example, under the “total trading volume” rule,if the leader enters one lot of currency A, both their account and the accounts of their followers will automatically trade one lot of currency A. Another example is the “equal share” rule: if the leader has 10 accounts (i.e., 9 follower accounts) and trades 10 lots of currency B, then all 10 accounts will trade one lot of currency B.
In contrast to MAM is PAMM (Percentage Allocation Money Management). The most notable difference between PAMM and MAM is that the PAMM system uses a single account, meaning the funds of both the lead trader and the followers are deposited into the same account, which makes fund allocation more convenient.The defining feature of PAMM is the percentage-based allocation. For example, suppose a single account in this system holds 50% of the manager’s funds and 25% each of the followers’ funds, totaling $10,000. After a trade, the account generates a profit of $5,000.it is obviously not possible to distribute the $5,000 directly among the three parties in proportion to their shares, as this would not be in the leader’s best interest. Generally, a portion of the $5,000 is first allocated to the leader according to the agreed-upon percentage before the remainder is distributed. Here, the percentage is set at 10%, which amounts to $500,The remaining $4,500 is then distributed proportionally: the leader receives $2,250, and each follower receives $1,125. Subsequently, the capital ratio for each person in the account is recalculated based on whether they withdraw their profits or continue to add funds.
Now that you’ve learned about the system, you should have a good idea of which copy trading system to set up. Setting up a copy trading system is quite simple, but there are still many details you need to consider. Most copy trading systems today are SaaS (Software as a Service), so you can successfully set up your own forex copy trading system simply by purchasing the software on an as-needed basis. However, there are some key issues you need to consider.
- First, how many accounts do you need to copy trades from at most, and do you need to operate across platforms?;
- The second point is what the requirements are for order execution latency; generally speaking, the lower the latency, the higher the price.
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