There is one piece of arithmetic that separates people who last in leveraged markets from people who do not. It is not complicated. It is just counter-intuitive enough that most people have to lose money before they believe it.
The asymmetry
Start with $10,000. Lose 50%. You have $5,000. To get back to $10,000 you need to make $5,000 — which, from $5,000, is a 100% gain. The loss was 50%; the recovery needs 100%. Losses and gains are measured from different bases, and the base after a loss is smaller.
The effect grows faster than the loss. Lose 10% and you need 11.1% back — barely noticeable. Lose 30% and you need 42.9%. Lose 75% and you need 300%. Past about 25%, every extra point of loss demands disproportionately more to undo.
A worked year
Two copiers each start with $10,000 on 1 January and each end the year with the same total of gains and losses — call it "plus 60 points, minus 40 points" spread across the months. Copier A has the losses spread thinly; Copier B takes one large hit.
| Copier A: steady | Copier B: one bad month | |
|---|---|---|
| Monthly pattern | +5%, +5%, −3%, +5%, −3%, +5%, −3%, +5%, −3%, +5%, −3%, +5% | +6% × 10 months, −40% once, +6% once |
| Arithmetic sum | +20% | +26% |
| Actual end balance | about $11,900 | about $10,700 |
| Worst drawdown | about 3% | 40% |
Copier B's arithmetic looks better — more up-months, a bigger sum — and finishes with less money, having spent the year's second half climbing out of a hole. The single 40% month cost more than all the small losses combined, because the gains after it were earned on a smaller base.
Three decisions this should change
1. How much to allocate to any one master
If a master's Max drawdown is 30%, a repeat would cost 30% of what you allocated and require 43% to recover. If that allocation is your whole trading balance, a repeat sets you back a year. If it is a third of your balance, the same event costs 10% of the total and needs 11% to recover — an ordinary quarter. Splitting an allocation across three masters with different styles does not just diversify direction; it caps the size of the hole any one of them can dig.
2. Where to set the auto-stop
The Auto Stop Drawdown % exists to keep you on the flat part of the recovery table. An auto-stop at 20% caps the recovery needed at 25%. An auto-stop at 50% — or none — means a bad master can put you in a position that requires doubling to recover. Choose the number on the table you are willing to climb back from, and set that.
3. How to read a big return
A master showing +150% in a year has, if their drawdown was 60%, spent much of that year recovering from the drawdown; a good part of the "return" is the 150% needed to undo the 60% and then some. A master showing +40% with a 10% drawdown made their gains on a stable base. The recovery table turns "which return is bigger?" into "which return was earned on an account that was never in trouble?" — a much better question.
The same maths, applied to a master's fee
The asymmetry has a quieter consequence for the profit share. IDTraders charges a share of profit only on winning periods; losses are not charged. That means a master who alternates +10% and −10% months is, over a year, slowly losing for the copier (each pair of months nets about −1% before fees) while still generating fee-able profit in the up months. A steady master at +2% a month with no down months makes the copier more and pays proportionally less in fees. The recovery table is one more reason to prefer the steady record over the exciting one: volatility is expensive twice, once in the arithmetic and once in the fee.
The behavioural trap
The arithmetic has a psychological shadow. After a 40% loss, the natural urge is to "make it back" — to increase size, take more risk, chase the 67% needed. That is exactly the moment when a further 20% loss becomes a 52% total and the required recovery jumps to 108%. Professionals do the opposite: after a drawdown they cut size until the account has recovered part of the way, precisely because they know the table. Proportional copying protects you from your own urge here — you cannot increase the master's size — but you can move the Risk Multiplier, and after a loss is the worst time to move it up.
The habit
Before following any master, write down two numbers: their Max drawdown, and the gain that would be needed to recover from it (from the table, or by dividing the drawdown by one minus the drawdown). If that second number is one you would not expect any trader to deliver reliably, the master's history has already told you what to do.
Losses are subtracted from a big number and gains are added to a small one. Keep the losses small enough that the small number is not very small.
This article is education, not investment advice. Trading and copy trading in leveraged instruments carry a high risk of losing the funds you allocate. Read the Risk Disclosure.