Social trading is a way for traders to follow the movements of a leader's portfolio. There are times when following the exact movements of a leader is not possible. This article will document how Shrimpy works with social trading and what you can expect when following a leader.
Social Trading Concerns
There are two main elements that Shrimpy evaluates when executing trades for followers. These elements are execution speed and execution price. It is commonly accepted that in a perfect world, the execution speed would be instant and the execution price would be identical across all followers.
However, this is unfortunately not possible.
There is a spectrum that must be balanced. This spectrum offsets speed and price. So, the faster we execute trades for all followers, the worse price everyone will get. However, the slower we execute trades, the better the prices we will be able to get.
So, it is our responsibility to find the balance on this spectrum that works best for our customers. Essentially, we want the execution of trades to be as fast as reasonably possible, without having a strong negative impact on price.
Note: This problem is not unique to Shrimpy. We trade on the same order books as everyone else, so this is an issue that all trading platforms must balance.
There are times when the results of social trading might not meet expectations. Some of these results include:
- Different performance than the leader.
- Unfinished rebalances.
- Slow rebalances.
Each of these issues are vastly more likely as the number of followers for a single leader increases.
1. Different performance than the leader
Receiving the exact same performance across all followers is unfortunately not possible. As trades are made, the market will move. Shrimpy does the best it can to reduce the impact we have on the market, but as leaders increase their following, this becomes increasingly difficult.
2. Unfinished rebalances
Shrimpy has conditions where it will short circuit a trade due to spread or slippage. This is done to prevent trades that would result in sizeable losses. When this happens, a rebalance will be left unfinished. We understand this results in a poor experience, but we believe that the alternative of placing a bad trade is worse than maintaining funds in a high cap asset like BTC / USDT / ETH.
3. Slow rebalances
As mentioned previously, there is a balance between execution price and execution speed. In order to get better prices, we must slow down execution speed. This can result in slower rebalances. Although slower rebalances are inconvenient, we intentionally reduce the speed to prevent paying more for an asset.
How leaders can address these issues
Leaders can help prevent some of these issues by taking the following actions:
- Trade on liquid assets - Executing trades on illiquid assets can cause the market to move. Primarily focus on allocating liquid assets that can sustain significant volume.
- Trade less frequently - The more frequently a leader trades, the higher the performance difference between leaders and followers. Additionally, trading frequently increases the likelihood that followers will not be able to fully complete a rebalance before starting the next.
- Reduce the number of followers by increasing fees - Leaders can reduce their impact on the market by servicing fewer followers. Generally, the easiest way to reduce the number of followers is to increase the cost of following.
How we will address these issues
There is no perfect solution for social trading. The Shrimpy team is constantly working to improve the experience, but at the end of the day, there will always be a tradeoff between execution speed and execution price.
Our team is evaluating new ways that we can improve the experience, so we are always welcoming feedback and suggestions for how that can be done. Please submit feedback by sending an email to Support@Shrimpy.io.