Nearly all prop firms block copy trading. They do so for two reasons – fraud and because it defeats the entire point of running a prop firm. It’s for this reason that prop firms have systems in place to detect copy trading.
Copy trading makes it much easier for scammers to abuse prop firms by automating their illicit trading strategies at scale and across different prop firms.
Even if someone is not using copy trading to commit fraud with a prop firm, they are still likely to be copying someone else’s strategy. Given that the entire point of a prop firm is to find talented traders, copying someone else’s strategy kind of defeats the whole point of prop!
The result is that prop firms typically have different methods of finding people who are using copy trading strategies. If a prop firm figures out you are using copy trading, they will almost certainly ban you from trading with them and not refund your challenge fee.
So how do prop firms detect copy trading? Read on to find out or watch our quick overview below
Prop firms and copy trading – a quick video overview
How prop firms detect copy trading – data!
Most prop firms use in-house or third-party technology to detect copy trading activity.
Every action that a trader takes with a prop, whether it’s purchasing a challenge or entering a trade, creates a data point that a prop can analyse.
It’s these data points that prop firms use to find people who are copy trading.
- VPS
One sign that a trader may be using a copy trading account is the use of a VPS.
A lot of traders will use a VPS to run automated trading strategies. Those can be legitimate. But it can also be a way for people to run a copy trading strategy and make sure your trading platform doesn’t go offline.
Props can often identify the fact that someone is using a VPS to trade with them based on the user’s IP address.
Using a VPS is not a guarantee that someone is doing something wrong, but it is a data point that could be a sign that person is using copy trading.
- IP addresses
For a similar reason, prop firms will often look at the IP addresses of accounts that they deem to be suspicious.
For example, if multiple accounts are operating from the same place, it’s plausible that some form of abuse is taking place – that could be copy trading or it could be something else.
This may seem like a dumb thing to do from the trader’s point of view. If you were going to scam a prop firm, wouldn’t you at least bother to cover your tracks? You’d think so but a lot of scammers aren’t that smart!
- Multiple accounts making the same trade
If you are doing copy trading, there is a good chance you are copying the trades of someone else, who is sharing their trades publicly.
It could be an influencer or it could be someone more anonymous that you found on a broker website.
Whatever the case, if someone has profitable trades that they are sharing publicly, the odds are lots of other people will be looking to copy them too.
And if a prop firm sees that lots of people are making exactly the same trade at the same time, it’s not that hard for them to figure out what is going on.
- Data sharing
With so many prop firms being targeted by abusers, one development has been an increase in anonymised data sharing between prop firms.
At the time of writing, this is still at an early stage. However, as prop firms continue to develop strategies to identify abusers, it is likely to continue.
What does this actually entail? Most of the technology is subject to non-disclosure agreements and prop firms won’t want to share it publicly – otherwise more people might find out how to get around it!
Technical details aside, what is likely happening is very similar to what prop firms already do internally.
As noted prop firms can easily detect if traders are making the same trades at the same time on their platforms. This is an obvious sign that some sort of abuse is taking place.
Data sharing between prop firms means they have the ability to see if this is happening with traders at different companies. So if an abuser was deliberately targeting multiple prop firms at once, those props would be able to see that information.
- Data patterns
This point is a bit more vague but is just as important. Prop firms have huge amounts of data.
For example, a prop might look at what country you signed up from based on your IP address, how long it took you to trade after purchasing a challenge, and what assets you are trading in. It could be even more granular, like how you moved your mouse on the checkout page.
Taken individually, these data points usually have little value.
But if you combine them then you often start to see regular patterns. For example, if someone is very quick to trade after signing up, that could be a sign they are more of a gambler – they just want to trade quickly.
We can’t know exactly what data points props are looking at but when they start to analyse them, they can start to form patterns of behaviour.
One of those behaviours can be copy trading. So even if you are doing something random, like taking a few extra minutes to sign up for an account, that could end up being a sign that you are going to engage in copy trading.
This may seem random or non-specific but that is how data patterns work. You analyse lots of different data points over and over again. When you do that you start to see common patterns of behaviour.
- Account reviews
The final method props can use to detect copy trading is to do a manual review of your account.
If you pass a prop’s challenge, it is very common for the prop firm to request details about your trading activity. A lot of props will even do video interviews with you to determine if you have engaged in abusive activity.
Another big component of this will be a review of your account and its trading activity. For example, a broker might look at something like an inconsistency between when your trades were placed and where you’re based physically.
These reviews are often a simple way of picking up fraudulent trading activity, including abusive copy trading.
Why do some prop firms allow copy trading?
Some firms allow copy trading but with big caveats.
For example, Alpha Capital allows copy trading but only between accounts you are operating. You must also provide detailed proof that you are the one managing the account.
As we’ve seen, the reasons for that are obvious. If you are not managing the account, the prop is not evaluating your trading, which defeats the whole point of the prop’s activities. You could also just be trying to defraud the prop.
All prop firms that TradeInformer has analysed have rules like Alpha Capital’s for this reason. It’s also why prop firms try to detect copy traders – they want to root out fraudulent behaviour that is against their rules.
Prop firm copy trading – the bottom line
Copy trading at prop firms, unless it is within the permitted rules, is generally a dead end and a waste of time.
Props have lots of ways of determining how you trade and whether or not you are using copy trading tools.
There is a high probability that if you are copy trading in breach of a prop firm’s rules, the prop firm will figure it out, ban you from trading with, and take any fees you’ve paid them.
So don’t bother doing it – it’s a waste of time!