notes-trading-zulutradeFAQ

Recently i found about about Zulutrade, a website which lets you pay in order to have your money be used to automatically trade currencies according to the instructions of other people.

So far i've found the software on the site to be excellent and the support staff to be unusually knowledgable, helpful, and prompt. However the on-site documentation is a bit lacking. So i'm going to collect relevant pieces of information that i've found, probably in a Q&A format.


Q: Is Zulutrade profitable? A: I don't know yet. The front page of the site will tell you that if you had simultaineously followed each of today's top 5 ranked systems over the last year, you would have made a lot of money. But this doesn't help answer the real question because at the beginning of the year, you don't know which systems will be in the top 5 at the end of the year -- it's like saying after a horse race "if you had bet on each of the top 5 horses, you would have made a lot of money".

Q: What does Zulutrade charge? A: It charges you nothing directly, but it makes money by charging your broker a commission on each trade (proportional to the amount of money traded). Some brokers pass on this charge to you; others eat it (because presumably they are already making enough money off your trades to make the extra business worthwhile). Zulutrade charges the broker 2 pips (per transaction or per round trip? i'm not sure) (however some brokers e.g. Interactive Brokers have spreads so small that the size of a "pip" varies from the norm, in which case i think Zulutrade uses the normal size of a pip for that currency pair).

Q: Are they legit? A: As far as i can tell, yes. They are registered with the U.S. CFTA and the U.S. NFA. Imo they don't seem to be scammers. They do have a resolved complaint against them by the NFA because a few years ago, shortly after they registered in the U.S., they had insufficient capital and they didn't report it immediately, apparently because they were newbies and didn't even notice it immediately -- they were fined for having insufficient capital and for not reporting that promptly. Imo this is not an important red flag. However you should investigate it yourself, don't trust me, i don't know anything about this stuff and i may be biased if i decide to become a signal provider later on.

Q: Can U.S. citizens who are not registered financial advisors/CTAs legally be signal providers? A: As far as i can tell, yes, although i am not a lawyer so don't take my word for it, ask a lawyer. My guess is that anyone is allowed to spout financial trading opinions as long as you don't give any advice to any particular individual personalized for their situation. Zulutrade, which is a registered advisor afaict, stands in between the signal provider and the investor. All the signal provider does is post non-personalized trading opinions; only Zulutrade, which is registered, touches anyone's money (furthermore, the end investor can give Zulutrade all sorts of instructions to disregard or modify the incoming signals, which the signal provider has no knowledge of and can't control, so not only does the signal provider not control any one's else's account, but the investors may not even really follow the SP's strategies). But as i said, i am not a lawyer and so i don't really know. Personally, i am reassured because they are registered with the CFTA; i presume the CFTA would have told them to stop if theis were not allowed. Paradoxically, the fact that they have a resolved NFA complaint makes me more reassured, because it means that someone actually took a good hard look at them at some point.

Q: Which brokers can U.S. citizens use? A: Apparently U.S. citizens aren't allowed to use most of them because there's some law that brokers can't offer services to U.S. people without being registered (or unless they are rich, possibly? see answer to next question), and of course many of the foreign ones don't want to bother. If you are in the U.S. you can click on Open Account->Create a new LIVE account and see a list of the ones we can use. As of this writing the list is AAAfx, FXCM, FXDD, Gain Capital (e.g. forex.com), FX solution (e.g. FXSOL), and Interactive Brokers. If you click on AAAfx though they redirect you to FXDD.

Q: If you are a U.S. citizen and you click on AAAfx and then get sent to FXDD, is this any different than if you had clicked on AAAfx?

A: No, it's just as if you had clicked on AAAfx:

" yong: Welcome to Zulutrade Online support service - my name is Yong, how may I assist you today?

you: hi i am a US citizen. i tried to open a live account on zulutrade with AAAfx but when i said i was U.S. it wants to redirect me to FXDD. If i continue to sign up for an account, will the account i get be any different from a normal FXDD Zulutrade account? In particular, will i have AAAfx's spreads and no commission, or will i pay a spread-based commission like with other FXDD Zulutrade accounts?

" yong: Welcome to Zulutrade Online support service - my name is Yong, how may I assist you today?

you: hi i am a US citizen. i tried to open a live account on zulutrade with AAAfx but when i said i was U.S. it wants to redirect me to FXDD. If i continue to sign up for an account, will the account i get be any different from a normal FXDD Zulutrade account? In particular, will i have AAAfx's spreads and no commission, or will i pay a spread-based commission like with other FXDD Zulutrade accounts?

yong: Apologize Sir, according to US regulations, AAAFx could not accept US clients as it is not US based (registered in EU); so your account will be directed to FXDD, and you will have a normal FXDD account with their spread as well

yong: For the time being, only if you register as a foreign corporation, you will be able to join AAAfx

yong: Or you could register as an individual if you have net worth over 10 millions dollars

you: ok thank you, have a great day

yong: Thank you for contacting us Sir

yong: Have a great day to you too "

Q: Which broker is best for U.S. clients? A: They won't recommend a specific one. I have tried Interactive Brokers but the commissions seem rather huge. I am planning to try FXCM Active Trader.

Q: What's the deal with FXCM Active Trader? A: I haven't tried it yet but apparently you need a $50k minimum deposit, and then you get better spreads than a normal FXCM account. Apparently you can get small rebates with this account if you sign up via an affiliate. I read somewhere that you can avoid the $50k minimum if you can prove that you will make over $10 million in transactions per month, but i don't see how an individual who doesn't have $50k could prove that (and i doubt it would be advisable to try and make that many transactions via Zulutrade on that amount of capital). I haven't tried it yet.

Q: Zulutrade displays ROI per month for signal providers. How is this calculated?

A: Assume all trades were sized at 0.01 std lots, and assume that the provider has $1000 at the beginning of each month. Here is the convo with support:

" Dear Sir,

With regards to your query about ROI calculation, as a common base and so as to be able to compare all providers on an equal basis, irrespective of their actual initial investment we make all calculations based on a hypothetical capital of 1000.00 USD.

Starting from that point onwards, we calculate the ROI based on the additional monetary investment earned by trading. To do so, we take the accumulated pips, and re-calculate them using the pip-value as if all trades were traded on 1 micro lot size.

After that, all calculations for drawdown, VAMI and ROI are made using the monetary value of the accumulated pips.

Best regards, Rose "

" thanks -- allow me to ask another question in order to confirm that i understand the effect of lot sizing and initial capital on the ROI that a follower will realize:

if:

then over the course of the month would the following account realize the same ROI displayed in the SP's Profit tab?

thanks, bayle "

" Dear Mr. Shanks,

Thank you for your reply.

Indeed, the ROI is calculated as you have described it. That is to say, if an account of $1000 equity were to be following only a specific signal provider, and executing all his trades with 1 micro lot size each, and provided there was no slippage or margin calls, this would be the account's ROI.

Please feel free to contact us at any moment, should you require any further assistance.

Best regards,

Rose "

" thanks, Rose. Is the 1 microlot per trade in the calculation regardless of the trade size listed by the provider, or do they multiply together? For example, the most recent trade for this SP:

http://www.zulutrade.com/TradeHistoryIndividual.aspx?pid=95877

is for 0.1 std lots of EUR/USD. Would their profit be calculated as if a $1000 account executed 0.01 std lots of this trade (a fixed size of 1 microlot), or 0.001 (1 microlot times the number of standard lots traded by the SP, in this case 0.1 * 0.01 = 0.001)?

thanks, bayle "

" It is actually 1 microlot in the calculation, regardless of the provider's trading size. "

Q: If i set a limit or stop for a provider, does that override the provider's limit or stop in all cases, or does is the tighter limit or stop used? A: It overrides in all cases; if you set a limit, the provider's limit is disregarded, and if you set a stop, the provider's stop is disregarded. However, for stops only, there is an additional option called "Safe" which uses the tighter stop. The safe option is not currently available in the Backtest.

email chain:

" If i go to My account -> Settings, check Advanced Settings, and set a non-zero Limit for a provider, and then for a particular trade the signal provider sets a tighter limit, will the SP's tighter limit override my looser limit?

thanks, bayle "

" Dear Mr Shanks ,

Thank you for your e-mail.

Following your query, I would like to inform you that by setting a custom stop / limit value, the system takes under consideration this value and not the stop / limit set by the provider.

In ZuluTrade?, we also provide the option “Safe”. Clicking on this case, the system will compare your stop to the stop set by the provider and will close the trade as soon as the safest stop is reached. Please note that the "Safe" option refers only to the stop; not to the limit.

Let’s see that with an example:

Let’s assume that the signal provider has a stop of 40 pips. You set a custom stop of 30 pips. The system will respect your stop and not the stop set by the provider. Thus, the trade will close if it reached the -30 pips.

Let’s assume now that you also check the “Safe” option. In this case, the system compares your stop to the stop set by the provider and will close the trade as soon as the safest stop is reached. Your stop (30 pips) is safer than the stop set by the provider (40 pips). Thus, the trade will again close if it reached the -30 pips.

Let’s say now that the signal provider updates his stop to 20 pips. If you don’t have the “safe” option checked, your stop will be respected without taking under consideration the stop set by the provider. If you have the “safe” option checked, the safest stop will be the one set by the provider in this case (20 pips). Thus, this will be the stop taken under consideration by the system.

I hope the above information is answering to your questions. For any further information or assistance required, we remain at your entire disposal. Our support team is available 24/7 via Live Chat, Phone or e-mail. You may find all our contact details following this link https://zulutrade.com/Support.aspx

Best Regards,

Catherine "

Q: Setting a limit or stop in the Backtest, even a stop at 999, causes weird behavior. Not only does the equity trace go wild, but even the number of trades opened changes. Why? A: This is a straightforward consequence of the limit/stop overriding the provider's limit/stop. The equity trace goes haywire because the provider's limit or stop is being ignored. The number of trades opened may change because while the provider has closed some trades, you still have them open, and since you set a max number of trades open per provider, some of their other trades may be rejected by you because they are already maxed out. Email chain:

" i ran the following backtest:

starting balance: 10000 leverage: 40:1 period: 3m Max Open Lots: no limit SP: 6 Sigma, lots: 1, max open trades: 1, max open trades/currency: no limit, limit: 0 stop: 999 slippage: 0

the results of this are different than if you run the same backtest except with stop=0. (profit of 5.105,00 with stop vs 1.434,00 with no stop).

the curious thing is that with stop 999, the backtest reports "Trades closed by stop hit: 0".

So if the stop of 999 is having no effect (which makes sense), then why is it changing the results? Perhaps this is a bug?

thanks, bayle ...

i also notice that the backtest with no stop says

Trades opened/closed: 54/54

whereas with a stop it says:

Trades opened/closed: 34/33

why would adding a 999 stop affect this? why is one trade remaining open with the stop but not without?

thanks, bayle "

" With regards to the backtest, the different results are not due to a bug but due to the Stop itself. I will explain in detail below.

The indication 'Trades closed by stop' only refers to trades closed by the user's custom stop, not the provider's. If a trade closes at your account by the provider's stop or limit, this would still be an external close for you and it would not be displayed at 'Trades closed by stop'.

What actually happens when you set the custom stop of 999 is that any trades closed by your provider's stop will remain open at your account, waiting for your own stop to be reached. Then, since your settings do not allow more than 1 lot by this provider, as long as a trade remains open at your account (as explained above, waiting for the stop of 999 to be reached), you will not be receiving any new opening signals the provider may send. This is the reason why the number of trades is much smaller in the Backtest with stop.

As for the final balance displayed, when you run the Backest without any custom stop, you see that your results are very similar to those of the Signal Provider, as seen on the graph. However when you have the custom stop of 999, it happens that some trades that were closed by the provider by his own stop but stayed open in your account waiting for your custom one, ended up doing very well and as a result your balance in this case was much higher.

If you would like to see the detailed closing reason and value of each trade in the Backtest, you can always download the relevant log by pressing 'Download Trade Log'.

Please feel free to contact us at any moment, if you require any further assistance or clarifications.

Best regards,

Rose

"

Q: Why is a provider with 100% winning trades risky? A: Let's say a provider decided, 'I'm not going to close a trade, ever, until it is profitable". Now let's say they buy EUR/USD and then it drops like a rock. This guy just leaves the trade open for who-knows-how-long, without any particular basis for thinking that EUR/USD is going to rise again soon. Eventually it rises and he'll close the trade and make a profit. This makes him a lot of profit, when it works. The trouble is that, someday, it won't work, and the trade will be losing forever (or at least many years) by a large amount. Another more technical issue is that even while the system continues to work out, if the drawdown on open trades is large enough, then when you follow this system, you'll get a margin call and be forced to close the trade, even while the signal provider keeps the trade open and makes an eventual profit.

This is not to say that providers should never leave open deeply losing trades. The key is that they should have some basis for believing that the trade will go up (to lose less, if not to win) soon. If they are operating in this fashion, then there are almost certainly going to be some times when the trade goes against them and their system tells them that something changed and it is no longer a reason to believe that the pair will rise (if they bought, but then it went down) anytime soon. At which point they would close the trade at a loss. So a 100% winning trades ratio, or something close to it, means that it is highly probable that the signal provider is keeping losing trades open without any basis for doing so.