Capital Management

Capital Management is a process of managing personal money, including means and methods of increasing the invested money. Knowing basic principles of managing money of your investment account and creating your portfolio the private investors may avoid the most common mistakes and associated losses, and to improve the indicators of profitability and stability.

Despite the fact that during a period of several months Signal Providers demonstrate high returns, profitable trades are always alternating with the losses. This is well illustrated in the graphs of experts’ profitability – any graph is covered with "peaks". Even adding better Signal Provider into the portfolio you may not predict accurately whether the first transaction would be profitable or unprofitable. During several days there may appear drawdowns, which afterwards will be covered by a successful transaction. These drawdowns are completely natural for Signal Providers and occur often enough, so one should take them into account and not neglect the rules of capital management.

All necessary settings of the portfolio are available on the page http://zulutradeinvest.zulutrade.com/, the tab "SETTINGS". To open the advanced options of the trading experts please tick the box in the "Advanced Settings" (under the bar Margin Call-o-meter in the picture below).

Stick to the maximum of open lots depending on the size of your capital

Even the most efficient trade in the market allows some drawdowns. For a trade expert a possible size of drawdown should not exceed 10% of the profit. With strict adherence to the recommendations the temporary losses will not exceed 5-10% and the profitability graph will be quickly stabilized. For low risk one should not open more than one lot for every $ 20,000; for the average risk - no more than one lot for every $ 10,000; for high-risk - no more than 1 lot for every $ 5,000 of your capital. Remember that while your money grows you may increase the maximum number of lots, continuing to follow the rules of capital management.

Add several Signal Providers to your portfolio

Due to portfolio diversification by means of several Signal Providers an efficient drawdown will decrease 2-3 times. If all Signal Providers have the percentage of successful trade more than 70, then the probability that five experts make mistakes simultaneously is less than 1%.

Not every Signal Provider supports open deals 24 hours a day. Normally, experts are waiting for suitable conditions for the opening of the deal, that’s why the deals of one expert can take 5-8 hours a day. Adding several experts to your portfolio will allow using your capital more efficiently, which may significantly increase the profitability of the same amount. But it’s not recommended to add to your portfolio too many Signal Providers: the recommended quantity is 3 to 5.

In order to eliminate the dependence on high-profit experts, increase the coefficient of lots for reliable experts with low income and decrease the coefficient of lots for high-profit but risky experts (the example is given below in the table of settings for experts).

Allocate an investment profit

Allocate an investment profit not only to increase the volume of deals for already added experts, but also to expand your portfolio. When the amount is increased by a sufficient number you should add a new expert or to create a currency basket. Currency basket allows keeping investment funds in different currencies. To create a currency basket just open an additional account with your broker, and transfer a part of your funds. Then set up your new account according to the investment strategy convenient for you.

Always set your stop levels to protect your capital from possible risk

By adding a Signal Provider you should set the acceptable maximum losses level: see the indicator "Stop" in the table below. If you make mistake as for the limits, it may harm your capital. To avoid it, always put limits for losses. The required limit may vary for different Signal Providers, advices on limits for individual experts can be found in the section Signal Providers review. Please make sure that all added experts have stop levels with a value not more than 100 points.

The maximum number of deals multiplied by a multiplier of lots of experts should not exceed a maximum of open lots for your account

In order the strategy of Signal Providers would be completely fulfilled in your portfolio, all deals of your experts need to be performed as well. Therefore, the maximum volume of deals of trade experts shall not exceed the maximum of the open lots.

Volume of Signal Provider’s deals = "Lots" * "Max Open Trades"

Add the volume of deals for each expert, e.g. for the table below we’ll get: 0.1 * 0.1 * 5 + 5 + 7 + 0.5 * 0.5 * 5 = 7 lots. This volume of deals essentially exceeds the maximum of open lots equal 3. In this case, you should decrease the multiplier of lots for experts Signal Provider FOREXTECHNO - [EURUSD_LT] from 0.5 to 0.2 and maximum number of deals for FOREXTECHNO SYSTEM A from 7 to 5.

In the table: the lots multiplier is the amount of every trade of a Signal Provider, max. number of open trades is a limit of the number of deals for this expert in your portfolio. Max. open lots is the maximum amount available for this expert (this indicator doubles the volume of deals of the Signal Provider, you may leave it unchanged). The maximum of open trades for two currencies: in the detailed settings of the expert you can specify the number of deals for each currency which the expert trades in (it's too detailed setup, you should avoid the experts which are trading in too big quantity of currencies). The reverse is the ability to follow the recommendations of an expert in reverse (it’s better not to use this setting). The limit is a limitation for the maximum profit from a trade, and value of zero leaves the limit for the discretion of the Signal Provider. Stop is a limitation for the maximum losses for one trade; we recommend the value 100 points maximum. Security is a setting connected with “Stop”. If the security is activated (the box is ticked), then the trade shall be closed after the "Stop" indicator of your expert appears, in case if his Stop is more advantageous than yours.

Perform the results of your experts check with your settings using the backtest

Once you have set up the new Signal Provider be sure to perform Backtest of this expert to demonstrate which effect your changes will have. Backtest is the fulfillment of the trading history of the expert as if you were subscribed to the signals of this provider before and used your settings. Depending on settings your trading results may vary a lot, both in the positive and the negative side, so always perform Backtest when adding a new Signal Provider. In order to perform checking, select necessary Signal Providers, having ticked them, and click on the Backtest button. The result will be displayed on the graph of the potential profitability for the last period.

Keep a balance between profitability and risk

Though investment in FOREX market is a risky investment, each expert has individual indicators of profitability and reliability. In each Signal Providers review, you may find a judgment about the risk factor and the potential rate of return (substantiated by previous history of trade). You should decide which ratio of profitability and risk is good for you. It is not obligatory to add only the experts with the chosen level of risk. You may, for example, add two experts with low risk and one with medium. You may also read examples of completed portfolio and recommendations on the choice of Signal Provider.

Use a Margin Call-o-Meter ™ to quickly assess the reliability of your portfolio

In order to assess the level of loads of your trading account (as each transaction is blocking a certain amount for leverage) in the ZuluTrade system there is a special tool which also makes signals if you made mistake and indicated too many lots. In case if the volume of transactions specified in the settings is too large for your capital, Margin Call-o-Meter immediately displays a red indicator. Always make sure that the margin call-o-meter shows the expected value before you finish setting of your portfolio. Green and yellow indicators show low and medium risk, red - high risk.