In recent conversations with Covesting users and the community we have seen the need to increase the initial followers equity cap across all strategy grades. There has been a noted influx of new users and growing popularity of the Covesting module and we believe by increasing this cap the change will be beneficial both for both Managers and Followers.
Currently, there is a limit on how much initial equity a follower may have in one strategy because large equity volumes following the same trading strategy bear multiple market risks and this cap intended to address those.
However, with there being an increase in demand, we have felt it important to improve clients’ experience while keeping in mind risk management considerations as well. By increasing this cap, we hope to allow more flexibility and freedom in the Covesting module, but also to maintain safeguards against market risks.
Understanding Initial Followers’ Equity Cap
The Followers’ Equity Cap is a hard cap which means that if current Initial followers’ equity of a strategy is equal to or exceeds the cap, no new followings can be started for that strategy. However, if total Initial followers’ equity falls below the cap due to followers stopping their followings of the strategy etc, then new followers can then begin following that strategy until Initial Followers’ Equity reaches the cap again.
Let’s consider the following examples of a Grade 4 Strategy capped at 20 BTC: (to see the different grades of a strategy, click here)
A strategy has 100 Followers with a total Initial followers’ equity of 19 BTC:
A follower with 1 BTC can start a new following of this strategy, but a follower with 2 BTC cannot start a new following, because the Initial Followers’ Equity would then exceed 20 BTC if they started the following.
Another consideration is, if the manager makes a 20% profit in the strategy, it would lead to a followers’ equity increase from 19 to 22.8 BTC. However, the Initial Followers’ Equity is still 19 BTC, because followers didn’t stop or start new Followings:
If some followers decided to book their profits and stopped following the Strategy, taking a total equity of 2.28 BTC from 10 followings out the profits and success fees are distributed to the followers, the Manager, and the platform. The remaining current followers’ equity is now 20.52 BTC and the remaining Initial Followers’ Equity is actually 17.1 BTC from 90 active followings:
New Followers can follow the Strategy until the Initial Followers’ Equity reaches 20 BTC, so a follower with 2 BTC can now start a new Following, because the Initial followers’ equity would then be 19.1 BTC and would not exceed 20 BTC if they started the following.
Additional Updates
Aside from increasing this Initial Followers’ Equity Cap, we are also making three other updates.
Progressive Trade Fees
In order to enable higher Followers’ Equity Caps we need to take into consideration price slippage from the execution of large orders at our liquidity-providing counter-parties. Towards this, we have introduced progressive trade fees for Covesting Strategy accounts.
Price spread and slippage can vary widely due to constantly changing market conditions, but in order to combat this PrimeXBT absorbs the risks of varying liquidity and transfers the price slippage into fixed trade fees on Covesting. Please refer to the table here.
Individual Limits on a Strategy Followings
We want to help users diversify their portfolios as well as minimize the risks of following only single strategies asn as such have introduced the Individual Limit on strategy followings
This also opens an opportunity for more followers to join successful strategies and benefit from their performance. Keeping these strategies more decentralized, rather than occupied by a few large followers means more fairness in strategy followings for all Covesting users.
Find out more about these limits here.
Restriction on Margin Withdrawing
While we allow for a Manager to withdraw extra equity from their strategy account and use it at their discretion, we also know that if there were open positions in the strategy, such a withdrawal would decrease available margin and increase positions’ leverage.
We have moved to protect followers from the risks of leverage increasing, so in the absence of a Manager’s trading activity, all positions must be closed before withdrawing Equity.
Further information on this can be found here.
We continue to make updates and advancements in the Covesting module in order to streamline your trading experience to the best of our abilities. Many of these updates are about increasing your potential to earn in copy-trading, but also to maintain the high degree of risk management, which we take very seriously.
