Copy trading involves taking trading decisions from a signal provider.
In some instances, such as with ZuluTrade that signal provider and the ZuluTrade platform they operate out of will provide the trading decisions only. The infrastructure required to hold funds and trade the markets will be set up by you.
Other copy trading platforms, such as eToro are more of a one-stop-shop and do provide an account for you to deposit funds into.
There are therefore potentially two parties that can request a minimum cash balance requirement. The first is the signal provider and the second is the party that you set up your account with.
At eToro things are a little bit easier to define and unless you are Israeli the minimum initial deposit amount will be between $200 and $500.
The ZuluTrade set up requires you establishing which of two minimum amounts is the greater. The minimum amount required by signal providers varies from trader to trader and can be as low as $1. The broker account that backs on to the platform will have its own minimum level. For example, ZuluTrade’s own broker AAAFx requires account holders to deposit €250 or $300.
If you’re new to copy trading then keeping trade size as small as possible is a good idea. Not only does this mean you can follow more accounts, and by doing so normalize your returns / diversify your risk. But more importantly you’ll be taking part in the cash management process that is particularly important to copy traders.
No trader has a 100% win rate. In fact, a particularly high win-rate doesn’t necessarily imply profitability. It could just sign that a trader is not applying stop losses and has not closed out positions that are now substantial losses.
Sticking with the idea of win-rates, imagine you’re following a trader whose strategy is more measured. The win ratio is 60% but – over the long term – it still has a track record of making profits for its followers. If you start following this trader when they start a series of losing trades, then you need to have funds available to ensure you have enough capital to stay in the game long enough to benefit from the winning trades. In this scenario, you need enough money to be able to capitalize your account to mirror the trader exactly. This could be done via having very deep pockets. Alternatively, by putting on very small initial trades any leaving capacity to scale up trade size if that should be what the signal provider does.