Underlying Logic of TradFi Copy Trading ｜ Gate

TradFi Copy Trading Core Logic

The TradFi copy trading mechanism replicates trades based on the proportion of total assets.

Calculation Formulas

1. Opening Position Scenario: Number of lots copied by the user = Copy trader’s account net value / (Lead trader’s account net value + lead trader’s order fee) × Number of lots ordered by the lead trader
2. Partial Closing Scenario: Number of lots partially closed by the copy user = Lots closed by the lead trader for this position / Total lots held by the lead trader for this position × Total lots held by the copy user for this position
3. Closing Position Scenario: The copy user follows the lead trader to close the position at market price

Examples

1. Opening Position
   TradFi lead trader’s account asset is 10,000. Opens 1 lot, fee is 6. After the order, lead trader’s account net value is 9,994, copy user’s account asset is 5,000.
   Number of lots copied by the user = 5,000 / (9,994 + 6) * 1 = 0.5

2. Partial Closing
   TradFi lead trader currently holds 1 lot, partially closes 0.2 lots, copy user follows with 0.5 lots.
   Number of lots partially closed by the copy user = 0.2 / 1 * 0.5 = 0.1

3. Closing Position
   If the TradFi lead trader fully closes a position, the copy user will also fully close the corresponding copied position.

Special Scenarios

1. Due to minimum lot size restrictions when placing orders:
   • If the system’s minimum order lot size is 0.01 lots and the calculated lots for the copy user is 1.111, the system will round down and place 1.11 lots;
   • If the system’s minimum order lot size is 0.1 lots and the calculated lots for the copy user is 1.111, the system will round down and place 1.1 lots;
   • If the system’s minimum order lot size is 1 lot and the calculated lots for the copy user is 1.111, the system will round down and place 1 lot;

2. Due to maximum lot size restrictions when placing orders:
   • If the system’s maximum order lot size is 10 lots and the calculated lots for the copy user is 20, the system will round down and place 10 lots;

Common Copy Trading Failure Cases

1. If the copy user’s funds < lead trader’s funds, and the lead trader places an order for 0.01 lots, the calculated opening lots for the copy user will be less than 0.01 (the minimum possible opening lot size), resulting in copy trading failure;
2. If the copy user’s margin ratio <= 100%, and the lead trader deposits funds and opens a new position, the copy user will fail to copy the trade;

TradFi Profit Sharing Logic

As a Gate TradFi lead trader, you can earn a share of the net profits generated by your copy users. This profit sharing mechanism uses the High Water Mark (HWM) settlement principle for calculation.

Profit Sharing Mechanism: High Water Mark (HWM) Settlement Principle

• Profit sharing is calculated based on the copy user’s cumulative net profit and loss (including both realized and unrealized P&L) during the copy trading cycle, following the High Water Mark principle;
• Profit sharing only occurs when the copy user’s cumulative net P&L exceeds the recorded highest net P&L;
• If losses occur during copy trading, the lead trader must fully recover losses before becoming eligible for profit sharing again;
• A new High Water Mark is established only when the cumulative net P&L exceeds the previous mark, ensuring lead traders are rewarded only when they consistently generate profits for copy users;

Calculation Logic

• Cumulative net P&L during the cycle = All realized P&L since the start of copy trading + all current unrealized P&L - cumulative fees + cumulative holding fees + dividends;
• Eligible copy user P&L for profit sharing = Cumulative net P&L during the cycle - High Water Mark at last profit sharing trigger;
• Profit sharing is calculated only when “eligible copy user P&L” > 0; otherwise, no profit sharing;
• Profit sharing amount for the copy user during the cycle = Eligible copy user P&L * profit sharing ratio;
• Sum the profit sharing amounts from all copy users under the lead trader to determine the total profit sharing to be transferred to the lead trader;

Example

TradFi Core Metrics Calculation

Profit and Loss (P&L)

1. Calculation Formula
   Period P&L = Current assets – Total deposits during the period + Total withdrawals during the period – Initial assets

2. Example
   Current assets: 150, assets seven days ago: 100, total deposits during the period: 20, total withdrawals during the period: 10. Seven-day P&L:
   Seven-day P&L = 150 – 20 + 10 – 100 = 40

Rate of Return

1. Calculation Formula
   Rate of return = (Ending assets – Total deposits during the period + Total withdrawals during the period – Initial assets) / (Initial assets + total deposits during the period)

2. Example
   Current assets: 150, assets seven days ago: 100, total deposits during the period: 20, total withdrawals during the period: 10. Seven-day rate of return:
   Seven-day rate of return = (150 – 20 + 10 – 100) / (100 + 20) = 33.33%

Sharpe Ratio

1. Calculation Formula
   

Maximum Drawdown

1. Calculation Formula
   Maximum Drawdown Rate (MDD) = Max[(Historical Maximum Rate of Return – Current Rate of Return) / (Historical Maximum Rate of Return + 1)]

2. 7-Day Maximum Drawdown Example
   To calculate the maximum drawdown as of 0:00 on June 8, use the rate of return at 0:00 on June 8 as the starting point, calculate the drawdown over the 7-day period from 6.1 to 6.8, and identify the maximum value.

TradFi Copy Trading FAQs

1. After stopping copy trading, why does the status show "Copy Trading Stopping"?
   Because the TradFi market has periods of closure. When a copy user holds positions during market closure, the status "Copy Trading Stopping" will be displayed. Once the market opens, the system will automatically settle and stop your copy trading.

Disclaimer

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