The general logic of the copy trading mechanism is that a trader can allocate a certain amount of his funds to copy a specific trading strategy. The allocated funds from a trader’s account are moved to a Copy-trading account, which is a separate trading account. This account can only be used to follow/copy the specific strategy.
A Strategy Provider executes trades from his trading account, and all the followers will automatically copy all the trades, based on the Equity-to-Equity model.
The volume of a trade that will be copied, is defined by both the Strategy Provider’s and the Follower’s equities.
The Equity-to-Equity model is calculated as follows:
(Follower’s equity / Strategy Provider’s equity ) * Strategy Provider’s volume
- Strategy Provider’s equity = 4,000 EUR
- Follower’s equity = 1,000 EUR
The provider opens a trade of 400,000 units (4 lots) on EURUSD.
This trade will be copied with the following volume:
(1,000 / 4,000) * 400,000 = 100,000 (1 lot)