Understanding ROI in Copy Trading

The ROI metric is one of those that the traders consider the most significant one when engaging in a copy trading platform. The ROI, which is simply the return on investment, really shows you how profitable a trader or strategy is. On platforms like Combiz, ROI acts as a quick indicator of the amount of profit that you are making with respect to the capital that you have invested.

What Is ROI in Copy Trading?

To put it simply, ROI in copy trading is the percentage of profit or loss that you realize by following a master trader.

ROI Formula:

(Current Value – Initial Investment) ÷ Initial Investment × 100

Example:

• You invest $1,000 and make $200 in profit.
• ROI = (200 ÷ 1000) × 100 = 20% ROI
• So, your money has increased by 20%.

How ROI Works on a Copy Trading Platform

Combiz is an example of a copy trading platform where the ROI is a reflection of the master trader's performance that you are copying. It indicates how much profit or loss is made after executing their trades.

But a word of caution: High ROI is not the only criterion to be considered for a trader's evaluation.

Why You Should Not Rely Only on ROI

Many beginner traders will commit the error of choosing traders only based on ROI. This can be a gamble.

1. Time Factor

A 50% ROI over 5 years is not better than a 20% ROI over 6 months. ROI does not indicate the duration of the profit-making process.

2. Risk Exposure

Some traders report high ROI by exposing themselves to very high-risk situations. This could eventually lead to big losses.

3. Drawdown Matters

Drawdown indicates how much of the capital was lost during the bad periods. A trader with high ROI and high drawdown is a risk.

Important Metrics to Check Along with ROI

While picking the right trader on a copy trading platform, always check:

• Max Drawdown: The most considerable loss from the top to the bottom points.
• Win Rate: The number of profitable trades as a percentage of total trades.
• Risk/Reward Ratio: Profits compared to possible loss.
• Expectancy: Average profit or loss per trade.
• Consistency: Reliable performance over time.

These metrics are indicators of the sustainability of ROI.

Important Metrics to Check Along with ROI

• Make a comparison of ROI over the same period (3, 6, or 12 months).
• Don't leave out risk metrics in the process of trader selection.
• Be watchful of deposits and withdrawals since they can influence ROI computations.
• Consider ROI as a starting point, not the final decision.

Conclusion

In copy trading, ROI is an effective indicator, but it should never be the sole criterion. On platforms like Combiz, combining ROI with drawdown, win rate, and consistency gives a clearer view of a trader’s actual performance. The art of smart copy trading consists in the proper weighing of profit against risk.

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