Risk Management in Brokeree’s Copy Trading Solution

Brokeree Solutions is an Estonia-based developer of turnkey software for brokers operating with MetaTrader, especially renowned for investment systems Social Trading and PAMM. In June 2022, the company released a new cross-server, Social Trading. Six months later, here’s our take on how the risk-management system performed in this flagship investment system.

The new MT4 / MT5 Social Trading from Brokeree Solutions offers brokers new opportunities. The solution provides them with an unprecedented ability to unite all their clients into one united pool of investors and signal providers to support real-time trading between all of them.

With this innovative functionality, the internal structure of the solution is more sophisticated now. Hence the developers had to elaborate and improve the existing risk management system and offer something entirely new that meets the requirements of a new-generation solution.

In the updated Social Trading, the risk management system had to simultaneously cover two general issues: eliminate operational and infrastructural risks for brokers and offer reliable and understandable protection mechanisms for traders.

Operational and Infrastructure risks for brokers in Social / Copy Trading

The key feature of the new Social Trading is its ability to copy trades between different servers in real time using copy trading signals. Significant attention during the development of the solutions’ risk management system was paid to the tools, ensuring the safety and reliability of this process.

“At Brokeree Solutions, we know that brokers rely on the stability and software robust performance, especially for large trading volumes,” commented Victor Ivanov, Regional Head of Business Development (EMEA) at Brokeree Solutions. “The cross-server Social Trading combines the reliability and predictability of earlier versions of the investment platform and an entirely new functionality that opens up unprecedented freedom of action for brokers.”

Trade Copying Risks

Eliminating obstacles during trade copying and execution was one of the central architectural goals during the solution development. Unstable internet connection, overload of trading servers, problems on the side of a liquidity provider, and many other reasons may interfere with trade copying processes, especially with remote servers.

The key tool to eliminate these problems is a dedicated Copy Module installed for each server. With the module, brokers may set the frequency of the entire system monitoring, and if there are any discrepancies with copied trades, the tool will try fixing them automatically.

Hosting Risks

The solution is fully hosted on the brokers’ servers to ensure that the control of all trading processes and client’s data are safe. It’s connected via server-side API, causing low latency and stable connection to the trading platform.

Additionally, brokers may request infrastructure monitoring from Brokeree’s tech support to ensure the correct performance of the hosting server and installed solutions. Whenever there is an issue with a server or any part of the ecosystem, a notification is sent to the broker’s IT specialists and the technology provider’s tech support team.

It is crucial for the broker to host the solution on their side for full control over the performance and efficient risk mitigation. Without direct access to the server, the broker needs to entrust the provider with several key operations, settings, and monitoring, for example to set up hosting in-close proximity to the trading server. If the broker hosts a solution by themselves they will have granular control over their infrastructure.

The additional protection broker may use to avoid unexpected infrastructure collapses is the backup installation. So even during a crisis, the system will be online and accessible by traders, ensuring high availability of the service.

Administration risks on copy trading platforms

Besides the mechanism protecting the trades copying process, Social Trading has built-in features for operational risk management – the restricted administrators feature. This functionality is designed to create a transparent hierarchy of management decisions on the platform and accurately distribute the necessary powers among the personnel operating with the investment platform.

The solution allows brokers to appoint one administrator – a superuser with the most extended rights to manage the platform and give additional staff limited rights. This approach not only specifies staff relations at the platform, but also reduces the possibility of unwanted interference in the platform performance and human factor accidents.

Trading risks for users on the platform

While risk management for brokers focuses on ensuring a reliable and robust trading process with secure platform management, risk management for traders primarily concerns mechanisms to minimize their losses during trading.

A well-thought-out risk protection system in social trading considers the specifics and unique functionality of the investment system, namely, the ability to subscribe to signal providers and copy trades. With this approach, the basic risk mitigation tools for traders are:

• Extensive information about providers’ trading results;
• Ability to copy trades proportionally;
• Copying trading signals only for specific symbols or securities.

Advanced statistics of providers’ performance

The key audience of Social Trading is new traders who want to join a professional trading strategy to get their first profit. They must rely on actual trading data to choose a suitable provider from many others. Many investment systems provide potential subscribers with minimal information on the provider’s performance: the available data may be limited to 2-3 indicators, which can hardly help investors to make a decision.

Often such indicators show only the total profits a provider gains and should be characterized as a marketing rather than an analytical tool.

Social Trading by Brokeree Solution displays trading information for any period with over 100 different indicators and charts, so that a subscriber may make a more informed decision.

Copy trading on small accounts

Another feature of social trading is the difference in funds between providers and subscribers. Providers are experienced traders who usually operate with significant capital. Brokeree’s system provides the opportunity for proportional copying to equalize the trading risks of providers and subscribers, who often start trading with small amounts. This allows traders to specify the copying ratio or choose an auto-scale mode for automated ratio based on their balance.

Order-level risk management

The more advanced feature for managing these processes, well known to social traders, is Stop Loss and Take Profit settings. Advanced SL & TP settings allow investors to accurately configure all limits for the order.

Subscription level risk management

An advanced Stop loss and Take profit subscription system in Social Trading allows traders to configure conditions for all trades from one provider. This way if the total profit from trades reaches the desired amount, the system automatically closes them, suspends the subscription to the signal provider, and stops copying new trades.

Similarly, if the total losses or (floating losses for opened positions) exceed a certain level, for example, $ 2000, the system may:

-- close all trades copied from this provider;

-- close unprofitable trades, leaving profitable ones open;

-- stop copying deals and keep all existing ones open.

When the total losses overcome the settled limit, the solution may also suspend the subscription or unsubscribe the investor.

The modern trading industry is extremely technological. The quality of services and the success of brokers often depend on the reliability and stability of their technical infrastructure. Get in touch with Brokeree Solutions to access risk management tools, liquidity management solutions, and investment systems.