copy trading
Two people copy the same leader on the same day and end the quarter with different results. Usually nothing went wrong. They were on different allocation models, and the model is the part of copy trading that nobody reads.
The three common mappings
| Model | How it maps | Risk behaviour | Watch for |
|---|---|---|---|
| Equity ratio | Your size equals leader size times your equity divided by theirs | Scales with your account, closest to mirroring the leader risk | Rounding on small accounts can distort small positions |
| Fixed lot | Every leader trade becomes the same size on your account | Ignores the leader own sizing entirely | A leader who scales up risk is invisible to you |
| Fixed multiplier | Leader size times a constant you set | Simple, but risk drifts as your equity changes | A drawdown raises your effective risk per trade |
The mismatch that costs money
If the leader risks 1 per cent per trade on a large account and your mapping produces 4 per cent on a small one, you are not copying their strategy. You are copying their entries with four times the variance, which changes the distribution of outcomes far more than most people expect.
The one number to compute. Take the leader typical stop distance and your mapped position size, and work out the resulting percentage of your equity at risk. If it is not close to theirs, the copy is not a copy.
Practical settings
- 01Prefer equity ratio where available, and verify the first few trades by hand.
- 02Set a hard maximum allocation per leader, for example 20 per cent of the account.
- 03Set a stop-copy threshold in advance: a drawdown level at which the link is cut automatically.
- 04Check what happens to open positions when you stop copying. Some platforms close, some leave them with you.
Copy trading is a sizing product wearing the clothes of a strategy product.
Written by Aram Latifi. Ex-quant developer, now writing about the plumbing of retail trading. No affiliate links on this site.
