1. Risk Factor
1.1. Different types of Risk Factors
When you link a Slave to a Master to copy trades, we have to define the size of the trades. This can be defined using different methodologies depending on your preferences.
You have the choice between multiple methods to manage the trade size of your Slaves:
- Auto Risk: the Slave trade size is proportional to the Master trade size and proportional to the Master account size. The account size can be defined as « Equity », « Balance » or « FreeMargin ». This method allows you to be exposed with the same level of risk between the Master and the Slave proportionally to the account size.
- Fixed Multiplier: a multiplier is simply applied to the Master trade size to compute the Slave trade size.
- Fixed Lot: the Slave lot size does not depend of the Master trade size in that case. The slave trade size is fixed and is defined in advance for each trade.
1.2. How works the Risk Factor?
Let’s see an example for the Master trade below:
Master Equity = € 100’000
Master trade size = 300’000 GBP/USD (or 3 lots)
Slave Equity = $ 200’000
EUR/USD = 1.25
1.2.1. « Auto Risk » method
The « Auto Risk » method can be based either on the Balance, the Equity or on the FreeMargin. In this example, we will only use the Equity, however the concept is exactly the same for the Balance and the FreeMargin.
First, we need to convert the Slave Equity to the same currency as the Master account:
Slave Equity in EUR: $ 200’000 / 1.25 = € 160’000
Secondly, we need to compute the Equity ratio between the Slave and the Master:
160’000 / 100’000 = 1.6
Finally, we apply the Equity ratio to the trade size:
300’000 GBP/USD * 1.6 = 480’000 GBP/USD
This is the amount that we will trade to have the same level of risk than the Master account. However, for risk management flexibility, we offer our clients the possibility to multiply the trade size by the « Auto Risk » value defined by the client.
Auto Risk value = 1 (Same risk for the Master and the Slave) 480’000 * 1 = 480’000 GBP/USD
Auto Risk value = 2 (Twice more risk for the Slave than for the Master) 480’000 * 2 = 960’000 GBP/USD
Auto Risk value = 0.5 (Twice less risk for the Slave than for the Master) 480’000 * 0.5 = 240’000 GBP/USD
1.2.2. « Fixed Lot » method
For example, the client set the « Fixed Lot » value at 2.5. So this case is extremely easy: each trade will use this value as a trade size. So 2.5 will be traded for each transaction whatever the Master trade size is.
1.2.3. « Fixed Multipler » Method
For example, the client set the « Fixed Multipler » value at 2.5. Remember that the Master trade size is 300’000 GBP/USD, so we simply multiply 300'000 by 2.5. So the Slave Trade size will be 750‘000 GBP/USD.
1.3. Risk Factor‘s group
How to group accounts with the same Risk Factors?
Let’s imagine that you are managing 100 Slave accounts with 3 strategies (Master) and that you offer 3 levels of risk. Instead of manually applying the risk to each account, which is fastidious, you can create groups of Risk Factor.
“Low Risk” Group
Master A => Auto Risk: 1
Master B => Fixed Lot: 0.5
Master C => Fixed Multipler: 0.8
“Medium Risk” Group
Master A => Auto Risk: 2
Master B => Fixed Lot: 1.5
Master C => Fixed Multipler: 1.8
“High Risk” Group
Master A => Auto Risk: 3
Master B => Fixed Lot: 2
Master C => Fixed Multipler: 2.8
As you can see, you can combine the different Risk Factor methods if needed.
So, instead of manually defining the Risk Factor of each Master for each Slave, you can just apply a group of Risk Factor to each Slave.
Slave A: Risk Factor = “High Risk”
Slave B : Risk Factor = “Medium Risk”
Slave C : Risk Factor = “low Risk”
Slave D: Risk Factor = “High Risk”