Question: How to calculate "Risk Ratio" on LiteForex's Social Trading?
During the first month of trading, a Trader’s account is marked as new.
Therefore, Copying Traders are warned that this account is in the high-risk category.
The Account Risk Factor is recalculated every hour according to the rules described below.
Trader’s accounts are classified on the basis of Risk Ratio:
| Risk 1-3 (marked in green) | the Trader’s account uses a low risk strategy. Usually this means no trade during the news releases (during high volatility) and no large positions (relative to the amount of funds on the account) |
|---|---|
| Risk 4-7 (marked in yellow) | the Trader’s account allows for a moderate drawdown and deposit load and uses medium volume of trades. |
| Risk 7-10 (marked in red) | usually this is a new Trader’s account using aggressive trading strategy, high deposit load and often trading in news time. Often a trader will not follow a certain trading strategy. |
The risk level of Trader’s account is based on Trader’s trading history and is calculated automatically based on the following parameters (the influence of each parameter on the score is indicated in brackets):
- Maximal relative drawdown (weight factor 0,5)
- Maximal deposit utilization rate (weight factor 0,3)
- Leverage (weight factor 0,1)
- Account lifespan (weight factor 0,1)
Each of the parameters above has its own scale from 1 to 10 points and its own weight in the final risk estimation.
The total Risk ratio is measured in values rounded to the nearest whole number.
Thus, the total Risk ratio is determined by summing up points for each parameter multiplied by its own weight factor.
Risk = Points of Maximal relative drawdown * 0,5 + Points of Maximal deposit utilization rate * 0,3 + Points of Leverage * 0,1 + Points of Account lifespan * 0,1
1. Maximal relative drawdown (weight factor 0,5)
| Maximal relative drawdown (%) | Points |
|---|---|
| 50,00 + | 10 |
| 40,00 – 49,99 | 9 |
| 35,00 – 39,99 | 8 |
| 30,00 – 34,99 | 7 |
| 25,00 – 29,99 | 6 |
| 20,00 – 24,99 | 5 |
| 15,00 – 19,99 | 4 |
| 10,00 – 14,99 | 3 |
| 5,00 – 9,99 | 2 |
| 0 – 4,99 | 1 |
2. Maximal deposit utilization rate (weight factor 0,3)
| Maximal deposit utilization rate (%) | Points |
|---|---|
| 50,00 + | 10 |
| 40,00 – 49,99 | 9 |
| 35,00 – 39,99 | 8 |
| 30,00 – 34,99 | 7 |
| 25,00 – 29,99 | 6 |
| 20,00 – 24,99 | 5 |
| 15,00 – 19,99 | 4 |
| 10,00 – 14,99 | 3 |
| 5,00 – 9,99 | 2 |
| 0 – 4,99 | 1 |
3. Leverage (weight factor 0,1)
| Leverage | Points |
|---|---|
| 400 + | 10 |
| 300 – 399 | 9 |
| 200 – 299 | 8 |
| 150 – 199 | 7 |
| 100 – 149 | 6 |
| 75 – 99 | 5 |
| 50 – 74 | 4 |
| 25 – 49 | 3 |
| 10 – 24 | 2 |
| 1 – 9 | 1 |
4. Account lifespan (weight factor 0,1)
| Account lifespan (In days) | Points |
|---|---|
| 0 – 89 | 10 |
| 180 – 299 | 9 |
| 200 – 299 | 8 |
| 300 – 359 | 7 |
| 360 – 449 | 6 |
| 450 – 509 | 5 |
| 510 – 599 | 4 |
| 600 – 689 | 3 |
| 690 – 779 | 2 |
| 780 + | 1 |
Example :
Let’s say an account had the following parameters and points (without considering weight factors):
- Maximal relative drawdown: 22,5% = 5 points;
- Maximal deposit utilization rate: 11,32% = 3 points;
- Leverage: 1:400 = 10 points;
- Account lifespan: 84 days = 10 points;
So, the Risk ratio with weight factors considered shall be calculated as follows:
Risk = 5 * 0,5 + 3 * 0,3 + 10 * 0,1 + 10 * 0,1 = 5.4 ≈ 5
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