System Trading Blog

Make Your Money Work Harder

Zulu/Saxo Live Account Test

leave a comment »

I opened a test account with Saxo Bank to trade it through zulutrade.com. On Zulutrade there are probably thousands of trading signal providers who compete globally, they have all the motivation to perform and everyone with an eligible brokerage account at any time can add or remove their signals by just a few clicks. Saxo Bank is a licenced and regulated Danish bank, deposits are covered by deposit guarantee programm and as such it probably meets the requirements of even the most conservative investors.

The quick observations are given below.

There are major issues with reporting
The equity figures just don’t add up. Equity figure looked strange throughout the week. At the end of Friday I closed all the positions, but the equity value continued to fluctuate. I contacted Zulutrade, but they suggested to contact the broker as the equity updates they get from the broker. Zulutrade couldn’t offer any valid explanation why in an account with no open positions current equity is so different from what it logically should be (i.e. initial equity + P/L)..

Another telltale of reporting saga — a record in the history log shows 111 pips profit while the corresponding EUR value is 0.

Saxobank doesn’t respond to service request
Incidentally, I can’t perform first-time log-in into Saxotrader account with the password as provided by Saxo Bank. A few days ago I’ve sent two inquiries about the issue, but there have been no response so far.

Brutal slippage
Expectation
The promotional e-mail said “2 pips spreads”. What I reasonable expect is 1.5 pips added per round-turn to cover rebate to zulutrade.com. That would make the spread at 3.5.
Reality
At closing of the trade, the broker adds 4.5-5.5 pips. This is systematic beyond shade of doubt. Subsequently, the actual spreads are 7-8 pips or about twice what could be reasonably expected.
As a real-life example: if there is a sell stop for EURUSD at 1.4845, you’ll get a fill at 1.48405.
The implication is — if you autotrade a system with, say, average 20 pips profit per trade, the real-life profit is likely to be 10-11 pips due to slippage (i.e. the expected performance will be just about half of Zulutrade reported performance).

Low Leverage Level
Zulutrade has a built-in risk evaluation tool called “Margin Call – o – meter”. This is a good thing as it helps to evaluate risks arising from excessive leverage and, as the name implies, helps to avoid margin call (i.e. liquidation of open positions by the broker).

For most of the signal providers, 3-4 times leverage can be applied before the “meter” goes into the danger zone. There is no reason to question the meter’s accuracy and, consequently, customer can expect to trade at about 3 times leverage.

Equity value not too informative
The equity value is constantly updated and displayed in Zulutrade “Positions” section. Unfortunately, value of funds tied-up as margin for open trades, are deducted from the equity value. This is a poor practice as it treats margin as a loss while the trade is open. A more correct name for the “Equity” line would be “free margin” or “unused margin”.

Endnote
Does anything of the above came as a surprise? Not exactly. It was well below expectations. Technical risks in autotrading are still considerable and not only on Zulutrade. Does it somehow devalue the autotrading as an investing method? Not at all. The concept is very sound. Services like Zulutrade are very efficient in sourcing trading talent globally and, effectively, allocating capital to profitable traders and their trading systems. This is the future of investing and technical issues will be sorted out sooner rather than later.

Advertisements

Written by A.S.

October 30, 2009 at 10:37 pm

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: