Generate passive income on the stock market, without lifting a finger. This is the promise of trading robots, or Expert Advisors, computer programs configured to place orders on the financial markets without your intervention. Is the bet held? Decryption.
The times are changing. And the methods of trading with them. If orders were previously issued by shouting, most of the operations are now carried out without human intervention. The strength of algorithms: their speed of execution. As soon as the conditions on the market correspond to the parameters indicated (price, time of execution, etc.), your orders are executed automatically. Well known to professionals, the automatic trading allows you to cut and open a multitude of positions in record time. The myth of wolf of wall street, with orders passed by hand, it hardly exists anymore. Today: everything is automated, Jol laughs.
This MoneyVox reader has been investing in the stock market for several years. In his early days, Jol lost as much money on the markets as he earned. I made some good shots, but I tended to give in to emotion, he recalls. I often cut my gains too early, and my losses too late. It’s an instinctive reaction that can prove disabling for investors. To make matters worse, he lacks time. Trading is a very time-consuming activity and I have a job on the side, explains the budding trader.
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So when he hears about automatic trading, Jol decides to take the plunge. But very quickly, he comes up against a oversupply and of a very heterogeneous quality. There is a lot of bogus sites, which multiply false promises to fool investors. I lost my initial bet several times. And it took me almost a year to find a serious solution, says Jol. A real obstacle course.
However, the game was worth it according to him. I ended up finding what I was looking for: a trading robot set up by a former computer engineer by training, with more than 20 years of experience in trading and the financial markets, explains Jol. The trading robot takes the form of a algorithm which interfaces with the broker’s platform used by Jol. Once configured, it analyzes in real time flows from the Euronext company – which manages the Paris, Amsterdam, Brussels, Lisbon, Dublin and Oslo stock exchanges – and goes up to 900 orders per year on the CAC40, DAX40 and S&P 500 indices. Result: an average gain of 15 30% per year, according to Jol, who however specifies that the solution is not magic and does not exclude the risk of loss.
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Scams, flash crashes… The drives of automatic trading
That said, not all stories end so well. Robots, there are dozens, and all – far from it – are not a winning investment. In 20 years on the markets, several automatic or semi-automatic trading robots have been offered to me, whether on currencies, indices or cryptos. Never has a robot given me substantial results over time, and never has anyone ever told me about a high-performance robot for a long time. I would therefore tend to be extremely careful of this type of offer, especially on social networks, warns Nicolas Chron, analyst at Market Zone.
First there are the scams, with those dubious sites that promise investors guaranteed profits. A martingale that often leads savers to invest their savings on trading platforms. scam brokers. Once your money is in your pocket, they disappear without a trace. Another widespread scam is that investors are offered a free trading robot if they deposit their funds with a specific broker. A promise which, again, will never be kept, the goal of the scammer so simply to touch a commission by referring new clients to the broker. Several brokers have already been pinged and appear on the blacklist regularly updated by the Financial Markets Authority (AMF) and the Prudential Control and Resolution Authority (ACPR).
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But beyond the pitfalls and false promises, Alexandre de Ravel, independent trader and trainer, wonders about the seriousness of the approach. Basically, programming software was created to make backtesting, that is, to calculate in the past the effectiveness of a strategy if it had been applied earlier. Unfortunately today some people use this type of software to generate automatic positions on future positionswhile it was not created for that at all, explains the young man on his Youtube channel.
Another point of attention: banks and investment funds manage to obtain results with automatic trading, but we are talking about players who devote tens or even hundreds of thousands of dollars to the creation and especially to the setting robots. It sometimes takes several years to make them profitable, knowing that in the meantime the market flies and that it is then necessary to incur additional expenses to update the robot. And even then, success is not guaranteed. Trading software only automates a trading strategy manual. If the strategy is bad, the performance of the robot will also be bad.
Worse: a configuration error can have dramatic consequences if the robot is left unattended, including for professional traders. On May 6, 2010, a poorly configured algorithmic trading program placed a sell order for an amount of 4.1 billion dollars, regardless of price or trade execution time. In the space of 10 minutes, the Dow Jones loses almost 10%. Never had a decline been so rapid: we are talking about flash crash.
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Social trading: reconciling man and machine
Between uncertain promises and very real risks, should trading robots be scrapped? Some actors, the image of the broker eToro, are exploring a third way: the social trading. Here, the machine does not just execute a previously defined strategy. She reproduced the positions of other traders on the platform.
Investors can simply choose the user they want to copy, enter the amount they wish to allocate, and the user’s positions will be automatically duplicated in real time and in proportion to the amount invested, explains Emmanuel Sackmann, French-speaking regional director at eToro. This feature allows investors beginners who learn the basics of this practice, and to users who do not have enough weather to monitor the markets constantly, to automatically copy the best performing investors.
Something to seduce novices. But here again, caution remains in order: whether a robot or a human is the origin of the trades, the gains are not never guaranteed. And the prospect of raking in an easy profit should not overshadow the risk capital loss.
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