Monday, March 29, 2010

Why Zulu Trade is a Death Trap for Traders

One of the most interesting websites which has been released within the last few years is - without a doubt- Zulutrade. This enterprise which seeks to hook up signal providers with traders worldwide in an effort to provide seemingless account management has gathered significant interest from both new and experienced traders alike. I have to confess that the first time I saw the Zulutrade website I thought it was a terrific idea, it is seems extremely good to have the possibility to have a proffesional manage your account and trade it efficiently when you are unable to do so. However upon a close analysis of this website for a little bit more than a year I realized that Zulu trade is nothing more than a death trap for traders. Within the next few paragraphs I will discuss my views about Zulutrade and why I believe it is an absolute abomination, a monster created as a biproduct of the urge people have to get quick profits and the urge other people have to take advantage.

So what is so bad about Zulutrade ? The idea - as I said before - is not bad at all. You put your money into a forex account and hook it up with a reliable signal provider which executes trades on your platform and brings to you good performance. Nothing wrong with that. The terrible dark secret of Zulutrade only comes out when you realize who the signal providers are, the insentives they have to do business and the way Zulutrade conducts its business in general.

How does Zulutrade do its business ? Although Zulutrade advertices their service as "free", nothing could be further from the truth. In fact, the company charges you a 1 pip comission per traded lot which is effectively going to hinder the profit of any profitable trading strategy. Add to that the fact that signal providers in Zulutrade also win in a trade by trade basis and you get a very strong insentive to trade as frequently as possible. Then we also have some very dark aspects of signal providers and their performance. Zulutrade allows its providers to execute their strategies on demo accounts with infinite capital, effectively making them avoid margin calls as long as they do not close positions in open draw down. What you get is very misleading performance which effectively makes it almost impossible to evaluate the potential of any of the trading strategies presented.

Then we have the problem of track record. Your money is not being managed by a proffesional trader, it is managed by a trader who possibly knows as much or even less about forex trading than you, without a verified track record and without any type of certification. It is actually illegal in the US for any person to manage either more than 15 forex accounts or more than 400K USD (whichever comes first) without being a registered Commodity Trading Advisor (CTA). Are any of the people managing accounts in Zulutrade CTAs ? No, they actually are not, reason why Zulutrade could also be in direct violation of NFA regulations in practice, although they must have found a loophole to allow them to conduct their business as it is. The fact is that the oldest accounts at Zulutrade have less than a year of live trading results, something which is a gigantic RED FLAG. Why would you trust your money to someone who does not have a consistent and long record of profitability ?

It is also worth mentioning that Zulutrade has all intentions to make all its signal providers appear as profitable as it can, because it is a win-win situation for them. If you trade with ANY signal provider, they will get paid comission, either if you win or if you lose. So they actually do not have any reason to show you an honest and reliable track record, something which would be very different if their comission depended on actual account profitability. Add to that the fact that signals are also bound to be executed with a certain delay and your profitability is even MORE hindered.

Do I know people who have used Zulutrade ? Yes, actually several of them. Three people I met who have used Zulutrade got a margin call and 2 others are within a deep draw down. None of them has made something even close to what is shown on the signal providers' performance pages, something which speaks a lot about the reliability of Zulutrade. In the end, Zulutrade is nothing more than a company which hypes its own signal providers who are traders without any certification or track record (which is shown and third party verified), traders are stimulated to enter a lot of positions and they are not stimulated to generate profits since their comissions depend on the volume traded NOT on the profits made.

If the people at Zulutrade were HONEST and they wanted to create a true reliable signal, managed account service, they would only collect comission from PROFITS and NOT on the amount of volume traded. It would be MUCH better for the customers since only good signal providers would be stimulated to stay and trading frequency would NOT be an issue which affected their overall profitability. Right now however- Zulutrade is a DEATH TRAP for traders- particularly new and inexperiencied ones which may be looking for an easy way to generate high profitability in forex trading.

If you would like to learn more about my experience with forex trading and how you too can design and program your own systems to achieve long term profitability in the forex market with sound trading tactics please consider buying my ebook on automated trading or joining Asirikuy to receive all ebook purchase benefits, weekly updates, check the live accounts I am running with several expert advisors and get in the road towards long term success in the forex market using automated trading systems. I hope you enjoyed the article !

3 comments:

Tcxmon said...

Daniel-

I agree 100%. I got sucked into the Zulutrade hype machine and lost a good chunk of money last year. I parted company with Zulutrade as of the end of last year and i've felt much better ever since.

Forex trading with Metatrader is a much safer and more reliable way of trading Forex because you have at least a chance of having future results agree with past performance.

With Zulutrade, I found that every signal provider (even the safe ones) eventually blew up my account and its because of the way the system is structured.

The fact that providers get compensated by trading (regardless of whether they win or lose) caused providers to take many small gains and avoid losses which turned out to be a disaster for my account.

After picking at least 6 signal providers that appeared profitable just to follow them all off a cliff I realized that the flaw was in the system, not myself.

Since then i've applied a lot of the same skills I tried to use in picking Zulutrade signal providers to picking MT4 EA's with much more success.

Even better, MT4 provides a platform upon which to slowly build an arsenal of trading system that over time can turn into a wealth-building machine.

So if you thinking of opening a live account with Zulutrade - don't do it!

Instead keep reading Daniel's blog and learn from all his good work on automated trading with MT4!

Chris

townjet said...

Hey Daniel,

gotta know that Chris and I would make a comment on this one. :)

In conjunction with Chris, I lost a good chunk of money as well. Chris and I both have/had blogs based on Zulutrade, Chris abandoned his, and I am on my last leg, I'll tell you why in a second...
I got pulled into the hype of it myself and tried many signal providers that eventually ran my account into the ground, due to much of what you described in your post.
I too agree with you fully on your statements in your post. In fact I created a post some time ago "Before you ever trade Forex on Zulutrade, READ THIS FIRST!!!", I would actually like to link to this post from there as well. I stated some of what you stated and having a second voice would be great.
...The only reason I still run Zulutrade TOP is because I come close to the top of a search in google for key word 'Zulutrade'. I would like new people to stumble on my blog and see my experience and maybe turn and run or at least give Zulu caution as many tend to like to make their own mistakes and learn. I have to admit though I am fairly close to just stopping as the story of Zulu is so final to me now. I did throw away $100 into my live account to show live results of a popular signal provider. Crazy how quickly the evaluation turned sour before I pulled the experiment. But at least the data is there for the readers. I am attempting one last experiment with another signal provider...

Your comment on Zulu breaking the law is very interesting. They may have a loophole of some sort as you mentioned but I wonder if the right people knew what Zulu was doing...

At any rate great post.

JT

Daniel said...

Hello Chris and JT,

Thank you very much for your comments :o) I consider myself lucky to have such faithful readers as yourselves !

I was indeed aware that you had both tried the Zulutrade approach from your blogs and I am sorry that you lost good chunks of money on this seemingly "legal scam".

@JT : I think that it is great that you are keeping your blog alive, even if you stop posting, having the blog online will help people see your experience and learn from it (those who can !). You may want to start a blog focused on other aspects of forex trading :o) now that you say that Zulutrade isn't interesting for you anymore.

Regarding the legal aspects, I am pretty sure that they have covered their backs through some technicality but -truth be told- what they are doing is account management and doing so without being a CTA is simply illegal. Those regulations are there for VERY important reasons, mainly to protect people from this sort of thing !

@Chris : Thanks a lot for your kind words at the end of your comment :o) I am glad you like my material and blog, hopefully I am also doing my share in helping people stay away from losing money on systems and approaches that do not work.

I am glad that you are now working at automated trading using metatrader 4, hopefully in time you'll start coding your own trading systems and we'll be able to get into some very interesting conversations :o)

Well, thanks again to both of you for contributing :o) I am glad that you are following my blog and that you find my posts interesting. I hope to see some more comments from both of you in the future :o)

Best Regards,

Daniel Fernandez

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