ZuluTrade has finally introduced a new method of management and allocation of the Lot Size for the replicated trades. In addition to the usual “Fixed” method, today you have also the “Pro-Rata Follow mode”.
Since its foundation in 2007, Zulu Trade has only ever offered one way to manage the lot size of the replicated orders on your trading account, i.e. the “Fixed” method. A Signal Provider could change the Lot Size of each new order, but the order replicated on your account had always the same Lot Size you had previously chosen in the settings.
The calculation of the Signal Provider’s performance then became a simple calculation of the pips gained or lost, and not of the corresponding money according to the Lot Size selected by the trader.
A Signal Provider could vary the Lot Size over time, so sometimes his pip could be worth more or less, but the follower investor did not have the possibility to vary his Lot Size in the same way, hence the pointlessness of showing the monetary performance. Better to show only the pips and use them as an absolute value.
This solution has definitely simplified things, and investors have been able to assess more easily the Signal Providers. However, at a theoretical level, this was definitely not the best solution in order to best replicate their performance.
One of the fundamental part of a Trader’s strategy is Money Management, or, in this case, the ability to vary the percentage of the capital at risk in every trade. To do this, the professional traders calculate the pips they decide to invest in a trade, and then they adjust the Lot Size in order not to risk more than a certain percentage of their funds.
Funds: 10.000 $
Capital at risk in a trade: 1 % = 100 $
Pips of Stop Loss: 50
100 $ / 50 pip = 2 $ = 0,2 Standard Lot = 2 Mini Lot = 20 Micro Lot
To the increase or decrease of the capital, but also to the changes of the pips of Stop Loss, the professional trader modify the Lot Size, to better manage the risk.
But this was not possible with ZuluTrade, or rather, it did not make sense with the “Fixed” option, as investors could not replicate this changes of the Lot Size, so much so that many Signal Providers had adapted their strategies to this type of fixed management.
How the ZuluTrade Pro-Rata mode works
Today, with the introduction of Pro-Rata mode, Zulutrade has finally opened the door to Lot Size and money management as a true professional traders.
Selecting the Pro-Rata mode on the Settings page, instead of the Lot Size value of the “fixed” mode, you can choose a percentage value.
That percentage represents the proportion against which the investor wants to replicate the Lot Size selected by the Signal Provider.
An example to clarify?
You have set 10% as Pro-Rata value. The Signal Provider opens a trade with a Lot Size of 1 Standard Lot, in your account instead the trade has been replicated with 1 Mini Lot, that is 0.1 Standard Lot, that is 10% of 1.
Or, you’ve set 50% of Pro-Rata, the Signal Provider opens a trade with 2 Mini Lot, in your account instead is opened a trade with 1 Mini Lot, because you choose to replicate 50% of that, which is only half.
The new possibilities with the Pro-Rata Follow Mode
This new option opens up a whole new world. The performance of a Signal Provider may be seen in a total different light, and those that with the Fixed option could be anything but attractive, with the Pro-Rata could become a workhorse of many portfolios.
Investors now have both options available, Fixed or Pro-Rata, and they can choose one or the other for each Signal Provider.
We should immediately point out that the Pro-Rata mode is not the solution to all problems in which an investor can stumble with ZuluTrade, as with any other Copy or Social Trading company, and that it may not always be the best solution.
Before deciding whether the Pro-Rata option is convenient or not, and to what extent, you should be able to carry out a study on the actual feasibility.
Let’s say we have an account of 1,000 $, and that we follow with the Pro-Rata mode at 10% a Signal Provider who operates with an account of 10,000 $, and that sometimes opens some trades with a lot size of 0.01 Standard lot. This Lot Size is already the minimum allowable with the ZuluTrade platform (and with the vast majority of brokers), so it’s not possible to segment it further.
In case you go below the minimum allowable quantity, that is a micro lot (0.01 Standard Lot), ZuluTrade will not replicate that trade on your account, because it would mean not respecting your settings. In such a condition you may find yourself not replicating several trades of that Signal Provider, and that would mean undermining the entire strategy.
All this to say that there are still situations where you have to go with extreme caution in the decision, and that under certain conditions the Fixed mode might still be the most convenient choice, even with Signal Providers that vary their Lot Size.
We must be able to analyze with different tools than those available up to now on ZuluTrade, which are still lacking.
We at InvestinGoal are already working to upgrade our educational material, either the free part and that available exclusively with the Gold Membership, as well as to update and create new tools for performance analysis, and of course we hope that ZuluTrade will do the same.
In any case, we will monitor closely the evolution of this new feature, and we will not fail to update our educational material, as soon as possible.
See you soon.