Currently, Copy Trading offers two copy trading methods for copiers: copy trading by total asset ratio and copy trading by fixed multiplier. The parameter settings and operating logic for these two methods are explained below:
Basic Copy Trading Logic
Number of contracts filled by the lead trader * copy trading ratio = number of contracts placed for the copier
The copy trading ratio can be dynamic, meaning copy trading by total asset ratio, or static, meaning copy trading by fixed multiplier.
Copy Trading by Total Asset Ratio
Under this mode, total assets are defined as the sum of available funds and the value of open positions.
For example, if a lead trader has 50 USDT in available funds and holds a BTC/USDT position worth 50 USDT, their total assets are 100 USDT. If they place an order worth 10 USDT, it accounts for 10% of their total assets. If the copier's total assets are 200 USDT, the copier will copy the trade with 200 * 10% = 20 USDT. (This is the calculation under ideal conditions.)
In practice, copy trading by total asset ratio is associated with the following five variables:
The lead trader's real-time assets, the copier's real-time assets, the margin calculation process, the real-time market price, and the price difference between the time when the copier and lead trader place their orders.
Tip: In general, users with larger assets are advised to use the other copy trading method: copy trading by fixed multiplier. This method is not affected by other variables, is more stable, and is suitable for major market movements.
Copy Trading by Fixed Multiplier in Detail
Under this mode, copiers can set a fixed copy trading multiplier.
For example, if the lead trader fills an order for 1,000 contracts and the copier chooses copy trading by fixed multiplier with a multiplier of 0.2, the copy trading system will place the following number of contracts for the copier: 1,000 * 0.2 = 200
Scenario 1: The copy trading multiplier set by the copier is < 1
For example: If the lead trader places an order for 1,000 contracts and the copier sets a copy trading multiplier of 0.5, the copy trading system will place the following number of contracts for the copier: 1,000 * 0.5 = 500
Scenario 2: The copy trading multiplier set by the copier is = 1
For example: If the lead trader places an order for 1,000 contracts and the copier sets a copy trading multiplier of 1, the copy trading system will place the following number of contracts for the copier: 1,000 * 1 = 1,000
Scenario 3: The copy trading multiplier set by the copier is > 1
For example: If the lead trader places an order for 1,000 contracts and the copier sets a copy trading multiplier of 2, the copy trading system will place the following number of contracts for the copier: 1,000 * 2 = 2,000
Note: When using a copy trading multiplier, the copier's position size is also subject to limitations such as the actual funds available for copy trading, the maximum order size per trade in the relevant contract market, and other trading or copy trading parameters.
Explanation of Copy Trading Failures
A copier placing an order does not necessarily mean that the order will be filled. In other words, a copier may not be able to buy the contract after placing an order. There are two specific reasons:
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Since the system places limit orders for copiers, the order cannot be filled if the market price deviates too far from the limit order price.
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If the copier's remaining margin ratio is low, it may affect subsequent position openings and cause copy trading to fail. In other words, the copier's remaining account balance is insufficient to support the order quantity.
Case Analysis:
The copier uses copy trading by fixed multiplier, with a copy trading coefficient of 0.01, and has assets of 700 USDT. The lead trader has assets of 100,000 USDT. When the BTC/USDT perpetual contract is quoted at 70,000 USDT, the lead trader uses 10x leverage to buy a contract position worth 1 BTC. How many BTC contracts (contracts) does the copier buy at this time, and how much margin is used? Later, the lead trader uses 10x leverage to buy an additional 10 BTC. Calculate the number of contracts copied by the copier and the margin required.
According to the formulas:
Initial margin = position value / leverage
Position value = contract price ✖️ position quantity
Number of contracts filled by the lead trader ✖️ copy trading ratio = number of contracts placed for the copier
Result:
Lead trader:
Assets: 100,000 USDT
Leverage: 10x
BTC/USDT perpetual contract price: 70,000 USDT
Buy: 1 BTC
Position value: 70,000 USDT
Initial margin: 70,000 / 10 = 7,000 USDT
Number of contracts filled: 1 / 0.0001 = 10,000 contracts
copier:
Assets: 700 USDT
Copy trading coefficient: 0.01
Number of contracts bought through copy trading: 10,000 * 0.01 = 100 contracts
Position value: 70,000 ✖️ 100 ✖️ 0.0001 = 700 USDT
Initial margin: 700 / 10 = 70 USDT
After increasing the position
Lead trader:
Planned purchase: 10 BTC
Number of contracts filled: 10 / 0.0001 = 100,000 contracts
Position value: 70,000 * 10 = 700,000 USDT
Required margin: 700,000 / 10 = 70,000 USDT
Calculate the lead trader's remaining funds:
Total assets: 100,000 USDT
Margin after the initial trade: 7,000 USDT
Remaining funds after the initial trade: 100,000 - 7,000 = 93,000 USDT
The lead trader has sufficient funds to meet the margin requirement, so the position increase succeeds.
The lead trader's total position after successfully increasing the position: 1 BTC + 10 BTC = 11 BTC
The lead trader's total position value: 70,000 * 11 = 770,000 USDT
The lead trader's total margin: 77,000 USDT
copier:
Number of contracts bought through copy trading: 100,000 * 0.01 = 1,000 contracts
copier's total position after increasing the position: 100 contracts + 1,000 contracts = 1,100 contracts
copier's position value: 70,000 ✖️ 1,100 ✖️ 0.0001 = 7,700 USDT
Position value of the copier's added position: 70,000 ✖️ 1,000 ✖️ 0.0001 = 7,000 USDT
Initial margin for the copier's added position: 7,000 / 10 = 700 USDT
copier's total margin: 70 USDT (initial position) + 700 USDT (added position) = 770 USDT
Key issue?
Since the copier's total assets are 700 USDT while the total required margin is 770 USDT, the copier does not have enough assets to pay the required margin. Therefore, the copier's attempt to increase the position will fail.
How can this situation be avoided?
1. Ensure sufficient copy trading funds
Reason: Insufficient copy trading funds can easily result in a copied contract quantity of less than 1.
Measures: 1. Calculate the required funds: Based on the lead trader's funds and the multiplier you set, calculate the minimum funds you need. For example, if the lead trader has 10,000 USDT in funds and you set a multiplier of 0.01, your minimum copy trading funds should be greater than 100 USDT.
2. Set an appropriate multiplier: Choose an appropriate copy trading multiplier based on your actual funds. For example, if you have limited funds, you can appropriately increase the copy trading multiplier to ensure that the number of copied contracts is not less than 1.
2. Use the same leverage as the lead trader
Reason: Different leverage levels result in different risk and return ratios, which may prevent the copier from replicating the lead trader's position when a trade is executed.
Measures: copiers should use the same leverage as the lead trader whenever possible to maintain consistent risk and return ratios.
3. Select the margin mode used by the lead trader
Reason: Different margin modes have different effects on fund management and risk control. If the copier selects a different mode, their risk exposure may differ from that of the lead trader.
Measures: copiers should select the same margin mode as the lead trader to ensure consistent risk management.
4. Reserve sufficient margin
Reason: When the lead trader increases a position, the copier may be unable to complete the copied trade due to insufficient margin.
Measures: copiers should reserve sufficient margin so they can follow promptly when the lead trader increases a position.
5. Users with substantial capital should use copy trading by fixed multiplier whenever possible
Reason: Copy trading by total asset ratio is affected by multiple variables. During major market movements, these variables can affect one another and lead to copy trading failures.
Measures: Choose copy trading by fixed multiplier to ensure stable copy trading.
By following these measures, copiers can more effectively avoid copy trading failures and improve the success rate of their copy trading operations.
Disclaimer
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