Automated trading in stock markets is gaining momentum. Traders who are tired of sitting at the monitor all day are writing programs that, without the participation of the trader, are able to see the exact signals, open a position and close it. The robo-industry went even further: in addition to trading advisors, robo-advisors (automated programs, online services) have already been created that can select an investment strategy for a client and create a balanced investment portfolio, that is, in fact, manage the client’s money. The largest such services are Wealthfront ($ 3 billion in assets) and Betterment (4.2 billion). But is it worth fully trusting robots?
Automated Trading Advisors: Pros and Cons
Advantages of trading advisors:
- time saving for the trader. Automated trading advisors, after setting the basic conditions, are able to open and close positions on their own, the trader can only observe the monitor periodically;
- trading 24 hours a day and the speed of decision making. The adviser saw a signal – immediately opened a deal, the trader will spend precious seconds on making a decision and placing orders;
- Emotional stress relief. The reason for the mistakes made by traders is psychological state and fatigue – this is what the trading advisor excludes;
- You can work with several advisors in different markets at once (increasing the volume of trade and its diversification).
Disadvantages of trading advisors:
- automated trading advisors do not take into account market volatility. Since they are programmed to analyze the situation on the basis of historical data, their work will have errors during force majeure, the release of important news (although scalpers advisors also exist). Also, the robot does not take into account the human factor, for example, spoofing (rocking the market by placing and instantly removing orders);
- There is no guarantee against program crashes or freezes due to its imperfections. The risk after testing such an event is minimal, but it is better to follow the program’s work;
- inability to create a perfect program. If a trader is able to quickly respond to any situation using additional tools, then automated trading advisors may give false signals. However, traders are also mistaken.
Summary. To some extent, you can rely on automated trading advisors, but only after long testing (6-12 months) and only part of the deposit. We would recommend using the advisor only as an auxiliary tool: let the program mark accurate signals to enter the market and notify the trader about it. And the trader himself may, on the basis of any additional information, decide to open a position. In the next article we will review one of the advisers, stay with the FxCash rebate service and follow our new publications!