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Performance Fee Survey

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Performance Fee Survey


I mentioned a couple of weeks ago, PsyQuation is about to complete the other side of its 2 sided market strategy. That is we will be enabling investors to copy traders on our platform.


This will not be the wild west of social trading. Instead we plan to launch what we believe will be the most responsible way of enabling investors to participate in the CFD market. Allow me to explain in a little more detail.


Our offering will have some restrictions, we will not allow you to copy anybody on the PsyQuation platform. Rather we will provide you with a limited but plentiful choice. We have spent 2 yrs investing, close to A$8m, incubating and progressing 36 “Pro” traders, with more coming through the ranks each month. It is our Pro traders that we will be offering on our platform for investment. We believe these traders have demonstrated they have “edge” and an ability to manage other peoples money, this will likely provide our investors with the best probability of future trading success.


We know from experience that investors do not usually invest optimally when faced with a fairly large choice of investment. Many of the same trading mistakes that you do when trading EURUSD and Oil will take place with Copy Trading such as buying Pro A at the top and selling Pro A at the bottom. To help overcome many of the issues of choice, PsyQuation has developed a portfolio approach to investing in Pro Traders.


Let me introduce something that almost everyone in the industry avoids talking about. They will bamboozle you with fancy words and legalize or they will simply not draw your attention to the problem, but PsyQuation is all about helping you achieve a good performance and if this is our objective we need to understand all the parts that put a strain on performance.


The managed account or copy/social trading industry will provide you with choice to invest in but they won’t highlight the fact that you are being exposed to a performance fee equalization factor that can cripple your after fees returns. I am going to demonstrate what I mean with a very simple example:


We have 10 traders each with an equal allocation of 10,000.  9 of the traders make 9,000 of profit for the period in question and 1 trader loses 9,000 so that the net return to the investor is zero. However, 9 of the traders are entitled to a performance fee of 20% = $1,800 so in our example the investor who has spread his risk across 10 traders is faced with paying performance fees even though they have not made any money. Trust me this hurts performance and can easily kill the goose that lays the golden egg.



PsyQuation has a plan to address this issue. Like with game theories minmax (Nash equilibrium) we have to find a solution that causes the least loss. To help us solve the problem in the best way possible we have come up with a survey that we would like the traders in our community to answer.


Answer this survey with the knowledge that PsyQuation believes a successful portfolio approach will enable us to raise more money than a product that just lets people choose any of the 36 pro traders in whatever amount they wish to invest. Our reasoning is that our portfolio will provide better risk adjusted returns which will allow us to market this product to a larger investor base. So keep in mind if you would like to have a smaller % of a larger cake. Please remember this doesn’t mean that you won’t also be able to earn the 20% performance fees from investors who wish to copy you directly.


Please take 10 minutes to answer this survey, it is anonymous and will be greatly appreciated.

Preference Falsification Prospect Theory