If you are new to covesting, please check out PrimeXBT’s Covesting Guide for an introduction to the basics.
The new Covesting Module on PrimeXBT gives you the power to easily hire and fire your own online team of dedicated traders, paying them only when they make you money.
Handled correctly, this incredible copy trading tool will allow you to make money without ever having to glance at a trading chart. Instead, you only have to choose from a list of strategies to follow, allocate capital to each one, and stop following at any time to withdraw your profits.
Yet, as with all investments, there is some risk involved. If your chosen strategy loses money, you will also lose money along with it. That is why it is crucial to know where and how to properly allocate your capital when covesting.
In this guide, we will be covering some tips and strategies for finding the most reliable strategies, maximizing profit, and minimizing risk with PrimeXBT’s powerful Covesting Module.
Pick Consistent Performers
Every trader, no matter how successful, makes losing trades from time to time. The key to successful, sustainable trading is to manage those losses properly so you can protect your capital and stay in the game.
A quick way to find strategies that have been doing consistently well over time is to use the performance graphs combined with the number of active days.
The best performance graphs are gentle upward slopes with small dips. This shows that the trader has the ability to steadily grow a portfolio while avoiding massive losses.
Performance graphs with steep climbs and sharp drops may look more exciting, but are not desirable when it comes to your investments. Save the roller coaster rides for your next visit to the amusement park.
However, a nice-looking performance graph by itself is not a reliable indicator. Newer strategy managers who simply got lucky for a week or two could have pretty graphs but get liquidated the very next day.
That is why we must also look at the number of active days.
A higher number of active days shows that the strategy manager has proven themself by performing consistently well over a longer period of time. Greater amounts of capital can be allocated to these strategies, as they are probably safer.
A lower number of active days means that the strategy is still relatively unproven. These strategies should be considered higher risk, and less capital should be allocated to them.
Massive Gains, Massive Risk
For anybody looking to make a lot of money very quickly, it is very tempting to rank the strategies by today’s profits and simply pick the ones that are performing very well right now. Why settle for 5–10% gains when you can have more than 100% profit in a day?
In fact, choosing strategies this way could actually be the quickest way to book a loss!
If any strategy makes huge gains in a short amount of time, it is very likely that the manager is taking on a huge amount of risk. This means that following this strategy could wipe out your capital just as quickly as it could double it.
That is why such strategies should be treated as high risk, high reward plays. Manage your risk by avoiding them entirely or investing only small amounts and securing profits more frequently.
High Manager Equity
In each strategy’s dedicated page, you will find the amount of equity the strategy’s manager has in the account. This shows you how much of the manager’s personal funds are being put at risk in the strategy.
Use this number as a possible indicator of how confident the manager is in their own trading skills. If they are not confident enough to put a significant amount of money in their own strategy, then why should you risk your own capital?
High manager equity is also an incentive for the manager to be more careful with their trades.
A manager who has $300 of their own equity at risk can easily get themself liquidated without much damage to them
Conversely, a manager who has $5000 or $10,000 of their own capital at risk is far more likely to take great care in researching, placing, and managing their trades.
High Historical Margin
Each strategy also has a graph that shows the amount of margin used, going from 0% to 100%.
Use this graph to help figure out how much risk the manager is taking with their trades. The higher the number, the less risky it is. Lower numbers indicate more margin being used and higher risk of liquidation.
This is an example of a high risk strategy. The available margin dips down close to 0% multiple times, and is rarely above 50%. Avoid these kinds of strategies or treat them as high risk traders and invest smaller amounts.
Secure Profits Regularly
As long as your funds are in a strategy, they are at risk. Even strategies that seem consistently profitable can suddenly show massive losses. The fact is, these strategies are managed by real people, and we are all only human.
Traders that suddenly lose their top position on the Ratings board could suddenly decide to take an unusually high risk trade in order to regain their high ranking. A small lapse in judgment, simple misclick, connection issues, or any number of mishaps could happen that force a strategy to book a massive loss.
In order to manage that risk, it is wise to stop following strategies and secure profits regularly. With regular funds, a withdrawal request may take several business days to process and clear before you can get your money back. If the fund is running low on cash, it can take even longer to liquidate the assets required to pay you back. Fortunately, covesting has no such drawback. You can stop following a strategy at any time and have the funds back in your PrimeXBT account in minutes.
Re-Evaluate and Diversify Strategies
Securing profits regularly gives you the opportunity to re-evaluate the strategies you want to follow and reinvest your capital in the most optimal way. Never get attached to a strategy or manager.
A strategy that looked amazing when you started following it may be underperforming now, while a strategy that looked terrible before could have turned a corner and started doing well.
If the strategies you followed before are no longer looking as good, do not be afraid to drop them for better performing ones. Remember that you are here to make money, not make friends.
To stay safe, it is also important to diversify your strategies. Putting all your capital into one good strategy could be devastating if that strategy unexpectedly books a huge loss. With a diversified portfolio of multiple strategies from different managers, you reduce the risk of a single trader having a bad day and obliterating your account.
Minimize Your Fees
One way to increase your profits is to reduce your costs. When you stop following a strategy, profits do have to be shared with the strategy manager and platform.
However, the percentage of profit you get to keep is not fixed. The more you invest when you start following, the more profit you get to keep when you stop following. The profit split is determined by the amount you put in at the beginning, not the amount you withdraw when at the end.
To take advantage of this, stop following strategies when they have made you enough money to reach the next level of profit distribution.
Using the screenshot above as an example, securing profits and reinvesting when you accumulate more than 0.3 BTC, 0.5 BTC, and 1 BTC will allow you to keep increasingly more of the profits. If you simply invested 0.25 BTC and let it grow to over 1 BTC, you would keep only 60% of the profits. On the other hand, if you stopped following once you reached 0.5 BTC and started following again, you would keep 70% of the profits.
In the future, holding the $COV token will allow you to further reduce costs by reducing or eliminating platform fees.
In this article, we have shown you some tips for properly assessing the strategies you follow, managing your risk, and running your own successful trading team using PrimeXBT’s powerful new Covesting Module. With a little care and attention, covesting can be a timesaving, simple way for anybody from newer traders to experienced but busy professionals to make money from trading.
To get started now, sign up at PrimeXBT to get access to the Covesting Module, as well as leveraged trading on many markets, including crypto, stock indices, commodities, and forex.