The definition of strategy providing cannot be found in any legal regulation, so in order to understand the concept we must have regard to its substance.
A strategy provider is a natural or legal person who has created their own user account on the platform of an online broker that holds (or at least should hold) the relevant authorisations required for trading in securities. Through their own user account, this person trades in the assets that the broker's platform allows to be traded (e.g. securities, or possibly cryptocurrencies) and sets their own trading strategy so as to generate a profit, while at the same time allowing other users of the platform to connect their user accounts to the provider's account in order to copy the provider's trading strategy. The broker's general terms and conditions may, however, link the option of allowing a connection to the strategy provider's user account with a certain monetary reward for the strategy provider. The strategy provider should also possess adequate knowledge and expertise relating to trading in assets on the relevant broker's platform.
In this connection it is also necessary to define the concept of copy trading, which is often associated with strategy providing.
A copy trader is a natural or legal person who, through their user account on the broker's platform, copies the trading strategy of a strategy provider, i.e. copies individual trades or all of the trades that the strategy provider executes on their own account. Copy trading therefore represents a considerable simplification of trading on exchanges where a person does not have the knowledge needed to make trading decisions on their own. In return for the copy trader copying the strategy provider's trades, the strategy provider is in many cases entitled to a reward provided by the broker on whose platform the copy trading takes place.
By deciding to copy the strategy provider's trading strategy, the copy trader essentially authorises the broker to automatically execute the same trades on the copy trader's user account as well. The trades are therefore executed neither by the copy trader nor by the strategy provider, but rather by the online broker itself.
A broker is the operator of a platform intended for trading in various assets, and this person must hold the relevant authorisations to carry out this activity (in particular the authorisations governed by Act No. 566/2001 Coll. on securities and investment services and on amendments to certain acts (hereinafter the "Securities Act")). The activity of an investment firm within the meaning of Act No. 455/1991 Coll. on trade licensing (hereinafter the "Trade Licensing Act") is likewise not a trade.
How should the payment of a strategy provider's reward be assessed under Slovak law? Is a licence or a trade authorisation required to carry out this activity?
The payment of the strategy provider's reward takes place on a contractual basis, namely through acceptance of the broker's general terms and conditions when the strategy provider's user account is registered on the relevant web platform. Most online brokers' general terms and conditions do not contain any provision imposing an obligation to carry out the activity of a strategy provider. It therefore depends solely on the particular person whether they wish to become a strategy provider and whether they decide to share their trading strategies with other users of the web platform. In this connection, the strategy provider should not invoice the relevant broker, on whose platform the activity is carried out, for payment of the reward due to them. The reward is credited by the broker to the strategy provider's user account as a reward provided on the basis of a synallagmatic legal relationship between the online broker and the strategy provider, which arose through acceptance of the general terms and conditions.
The broker itself also benefits considerably from the strategy provider's activity, since on the basis of a copy trader's decision to copy the strategy provider's trading strategy it essentially executes a greater number of trades, for which it is entitled to an execution fee paid by the copy trader (this fee is also paid by the strategy provider).
When trading in their own assets, the strategy provider allows copy traders to connect their user accounts to the provider's user account. In doing so, however, the strategy provider does not receive any reward from the individual copy traders, nor does it provide them with any investment services or portfolio management services, which are classified as financial services governed by the Securities Act. Carrying out this activity therefore does not require obtaining a licence to provide investment services under the Securities Act, which should be held by the online broker operating the platform itself as an investment firm.
If we look at the definition of a trade, it is evident that the activity of a strategy provider does not fulfil the definitional features of a trade as they are set out in the Trade Licensing Act. The Trade Licensing Act defines a trade as a continuous activity carried out independently, in one's own name, on one's own responsibility and for the purpose of generating a profit, under the conditions laid down by law. A strategy provider does not carry out their activity independently – the copy trader gives the broker authorisation to copy the trading strategy, while the execution of the trades themselves is carried out by the broker. Nor does the strategy provider carry out the activity on their own responsibility. Responsibility always lies with the copy trader, since through copy trading they also bear the risk of a potential loss to their own assets, or with the broker itself, which is responsible for the entire web platform as well as for all trades executed on it.
Is copy trading a trade? Is a licence required for this activity?
If a natural or legal person decides to start trading with their own funds using copy trading for the purpose of increasing the value of their own financial resources, this is clearly not an activity that would meet the definition of a trade.
Likewise, this person does not need any licence required by the Slovak legal order for this activity (nor a licence to provide investment services issued to an investment firm under the Securities Act). When trading using the copy trading function, this person does not provide any investment advice, nor any portfolio management services.