Last Monday we were supposed to look at copy trading again, as part of a two-parter from the prior week. But then I got jet-lagged, morose, was harassed by my mother-in-law and felt like writing about b-books instead. Now that the dust has settled, we’re back with copy trading again.
As readers may recall, the purpose of the prior copy trading article was to ask ‘is this a thing you should do as a broker?’ and the answer was ‘yes’. However, to ‘do’ copy trading you typically require a technology provider to make it work for you.
With that in mind, and alongside getting volume figures, we spoke to some firms about why they chose the provider that they did. In a few cases the answer was what you’d expect and was related to trust, brand, and prior experience.
For example, several firms we spoke to use Pelican. Executives at two of those firms talked about Pelican being regulated and what I would describe as having a general ‘vibe’ of trustworthiness. Another broker used Brokeree because this was the solution their technical team had prior experience with.
This is not that surprising. If you look at why people buy or use any product, a lot of the time it’s just because they have used it before. For example, one company I worked at had one of the most archaic CMSs I have ever seen and yet a mix of lethargy and the fact everyone was accustomed to using it meant it never changed.
Trust and regulation are obviously a slightly different matter. Currently Zulutrade and Pelican are the only regulated copy trading providers that I am aware of. Pelican is the sole technology provider that has an FCA license – which goes some way in explaining why so many brokers use them here in the UK.
Zulutrade and Pelican also have EU and Mauritius regulatory licenses. However, Zulutrade’s Mauritius license is odd. It is supposed to be operating under an entity run by its parent company, which is called Finvasia Capital Ltd.
Although this company exists and is registered in Mauritius, I cannot find it anywhere in the local regulator’s database. That includes searching for prior names that the company held, using different brand names that the company operates under, and asking a local in Mauritius to do the same. It’s entirely plausible that this is user error on our part or something is up with the regulator’s database. I reached out to the Mauritius FSC to see what is going on there but had not received a response by the time of publication.
Aside from wanting some sense of regulatory wrapper to offer the product, the other reasons for choosing a specific provider could basically be boiled down to cost and features. For example, Brokeree, Plugit and other providers operate more like SaaS companies, where you get the solution out of the box but have to do a lot of legwork yourself.
To give an example of this, there is no existing base of strategies that you get when signing up with some providers. This means that, when you start, you then have to get the content / strategy providers needed to build out your copy trading product. Then you have to manage all of those strategies internally to make sure they are fresh, don’t blow up, and so on.
So while these firms may have flat fees that are ostensibly cheaper, they seem to require more additional investment from brokers to make them live up to their potential.
This is probably why cTrader integrated its copy trading solution with Pelican earlier this year. Pelican has a network of copy traders, so this makes the cTrader Copy product a more compelling offering – you don’t have to go and find people to populate your copy trading product.
The other problems brokers faced reminded me a bit of when you discuss liquidity with someone who works on a dealing desk. Every dealing desk will have some niche technical problem and they’ll find one provider that can solve it for them. The same is definitely true of copy trading.
To give an example of this, one broker we spoke to wanted to keep a close eye on what people running strategies were actually doing and whether they would deviate from it, so that they wouldn’t have to deal with regulatory problems if there was a blow up.
The same broker also wanted to make sure copied trades could be managed on the dealing desk. Apparently, which makes no sense to me, some copy tech providers force you to auto-execute trades, rather than you managing flow like you would normally. To handle these two ‘problems’ they chose Pelican.
The same was true of the owner of another broker, who was in the process of migrating to Pelican. However, this was because they wanted the built-in content.
Other factors that broker executives discussed included ease of use and other more technical features.
For instance, one broker had set up with Brokeree because it ‘fit’ with what they wanted from their more minimalist onboarding process.
Other technical problems can broadly be described as (1) handling automations and (2) cross-technology compatibility.
To give an example of this, if a strategy provider is using MT4 with USD as their base currency, can they be copied by a trader using MT5 on a micro account, who is using GBP as their base currency? And if the strategy provider needs to be paid, can that be done automatically?
Working out who can do what here is not as simple as you would assume. For example, Plugit states that it can do cross server copy trading. But it’s not clear that you could do it across different platforms and/or with different account settings, like varying base currencies.
Similarly, if you look through the technical specifications for Zulutrade, it looks like they would not be able to do a copy trade between different account types (eg. a cent account copying a regular account) or with cross-currency accounts. If you were using GBP as your base currency and were copying a USD account, for example, there would be a 1-to-1 logic in place. There also appear to be problems with copying across stop loss and limit orders on the platform.
Ultimately Pelican does seem to have the most comprehensive set of features among copy trading providers. But as we looked at many eons ago with liquidity relationships, choosing a provider often comes down to relationships and other idiosyncratic factors. So even if Pelican has the most comprehensive copy trading offering, you’ll still have brokers that want to use another tech vendor for their own (random) reasons.
