Auto-correction (or AC) of open trade is required to prevent deposits and withdrawals by some investors from affecting a PAMM’s income in general and to keep other investors’ accounts from leaping performance.
As a rule, a manager calculates the volume of transactions based on the available account funds. If there are open trades and some amount is withdrawn, the volume of the transaction needs to be reduced and vice versa. Without doing it, trading risks may increase failing to conform to the strategy of the manager (when withdrawing funds) or decrease (when depositing funds). This can cause reduced income or even a stop out.
Volume correction is performed for every open trade by the following formula:
Where Vn – new trade volume, V – current trade volume, Z – the net amount of orders to execute at rollover, Ep – PAMM’s equity before orders execution. Calculated volume Vn is then rounded downwards, taking into consideration the minimum lot size for the trading instrument. If volume Vn is lesser than a minimum lot, the position will be closed. In case AC is performed to increase volumes (positive amount of orders), orders are executed first and then volume correction. Otherwise (negative amount of orders), volume correction first and then orders execution. Pending orders volume correction is performed by the same rules as position correction, i.e. proportionally for each order.
Volume correction is performed within the same, initial order. Therefore, StopLoss, TakeProfit, Magic Number, comments and order opening price values do not change. The number of open orders does not change. There is a misbalance since in real life a position increased or closed partially by the market price and the order keeps the initial opening price. To fix it, a “virtual” closed order for the difference amount is generated in the statement, so that current account balance and equity would become as they should be in reality.
This action is equal to the standard procedure of a partial position closing in the MetaTrader terminal when a virtual order is being created right in the statement. In our case, we can also do it in case of increasing volumes. When decreasing volumes, the virtual order is of the same type (BUY or SELL) as the main order. When increasing volumes, the virtual order is of the opposite type.
All calculated swaps and commissions applied to the main open order.
“Comment” fiend of the virtual order is generated out of regular order comment by adding lines "#XXXXX;" at the beginning, where XXXXX is the ticket number of the initial order.
The manager can set a numerical threshold for AC triggering by equity change. The threshold determines by what percentage the minimum the account equity must change during the execution of orders for AC to work. It changes from 0 to 100. If you want AC to always be triggered, even when you enter or withdraw an insignificant share of capital, you need to set the value to 0. If you set the value to 100, then the threshold will never be triggered when funds are withdrawn.
A failure during AC is an unlikely but possible event. For instance, it may happen due to lack of liquidity, unexpected trading halt, trying to execute an order at the moment of session end, etc.