I lost a total of 20,000 USD yesterday in forex and commodities trading yesterday. In the process I have also indirectly caused one of my good friend to lose 8000 USD.
I had recently come into contact with a copytrading platform. Basically copytrading platforms allow you to copy the trades of other traders. There is a list of supposed master traders from whom you can choose from and to copy. You become the copy trader. I had looked through the list and chose a few master traders to copy after looking at their records and other various figures. For the first month I had lost money due to copying the wrong master traders. By the second month I had filtered out which are the good ones and had recouped everything back.
I thought I had found a good master trader who could bring in the money consistently, bit by bit. It was then that I felt confident to introduce my good friend into this. After a slow start, he also joined in proper. Both of us were earning decent amounts of money for the next month. Nothing big, but it was a decent side income.
I had liked this particular master trader because he was conservative, he played with little money and I could set my trades in multiples of his, according to my comfort. For example, if he played with 100 USD and I put in 2000 USD, my trades would be 20x of his. I had put in 50x his amount of money because that was what I felt I am willing to risk. Of course, I also earned 50x his profit and had 50x of his risk. This went on for some time and everyone was happy because we were actually earning money. As mentioned earlier, I thought I had found a good master trader which I could depend on. At least, 3000 USD profits a month makes me happy, and I frequently hoped for the day where my profits would snowball to 10,000 USD a month.
Actually it seemed that it was a team managing this master trader account, and not just a particular individual. Unfortunately recently there has been a change in trading style. The account became gradually more aggressive, and the paper loss increased.
I still remained confident because the master trader has been continually closing off successful trades and taking in actual profits despite the paper loss – something which made me decided to copy him in the first place and recommend him to my friend. Because despite the temporary paper loss, he still try to do what he can. However, his aggression towards trading kept on increasing, until one day I decided it was too much for my own comfort.
I wanted to withdraw the money once all the paper losses were cleared. But the situation was because he kept opening new trades, it was difficult for him to clear off all the paper loss. There came a day when his first batch of paper losses were all cleared, which was a good thing. But as he opened new trades, there were 2 new trades at a slight paper loss. I could have closed off at that time and be safe, but I decided to wait, thinking it was only 2 trades. It could be closed off fast.
Yet the 2 trades never got to close. It went downhill from there. He opened more trades and racked up paper losses. I was still not panicking because at that moment, the total paper losses were still small compared to the first batch, which was already cleared. The concept was simple, wait long enough and we could close everything due to the fluctuations of the market. But as he continually took in profits, he opened more and more dangerous trades, and by the time I realized it, it was too late. There was a knee jerk reaction in the market (basically big monies were manipulating it) and within 10 minutes many of us were liquidated.
Long story short, I had tested out a few master traders, and decide to stick with this particular one because his style suits me – conservative, and earning money slowly but consistently. Yet somewhere along the way the style of this master trader changed drastically, most likely due to a change in team members in the team behind it. The end of it saw me losing all my profits with a further 20,000 USD loss. My friend who traded based on my advice also lost 8000 USD.
I had realized halfway through, that this method of trading is too passive. Yes I could sleep and let the master trader do all the work, at the end of which I paid a certain percentage of my profits to him as commissions. But when he kept on opening trades, there was nothing I could do. There were trades I agreed with, and there were trades that were too dangerous for my comfort. At the end of it, it boiled down to one thing. It was not his money he was playing with. It was all the copy traders money he played with. His main income were from the copy traders’ commissions, not his own trade. His own trade involved little money, which was for others to copy. Conversely, if he lose, he only lose that little money he put in. But for those of us, who with our own volition, put in more money, will lose badly.
It drives another lesson back to me. To earn money, depend on yourself. Depend on others and you will be in a very passive state. As long as the main control is not with you, think thrice before engaging in the activity. I have lost 3 months worth of savings this time. But I will be back.
I hope this is a good lesson for those who may attempt copy trading, or in a wider sense, depend on others for your income. Depend only on yourself.