Can the individual use - or trust - automated stock trading software?
For your author, there is little point in trying to fake expertise here - finding someone that uses automated stock trading software is very difficult.
Your author is friends with around a dozen investment bankers. They are not the titans that we occasionally see on TV news, but instead they are the guys and girls that do the work on the telephone - making trades and doing deals.
Having discussed their work at some length, none of these people uses automated stock trading software. In fact, they all fear such a potential development!
Because they all earn good to great salaries for providing their own human input. Taking away that input will take away their job. Not nice.
Back in the 1980s, automated stock trading software was the 'new big thing' in the world of fund management. Buy and sell orders could all be automated and therefore happen without human interaction. However, many people have reported that the crash of 1987 when billions were wiped off the values of the world's stock markets was partly caused by such software.
It seems that fund management groups set their programs to sell at certain price levels. As these levels were met, stock was literally dumped into the market. This forced the price to fall further which triggered more sell orders and more dumping of massive amounts of stock.
Since this was being done by multiple funds and companies simultaneously, this was a non-stop spiral downwards for the market. The market was actually closed to prevent total meltdown.
So that is the downside, but on the upside, a lot has changed since 1987. The major fund management firms have improved their trading plans, software has become much more sophisticated which enables far greater analysis to the firms and regulators have put in place rules and principles to - hopefully - prevent this from happening again.
The market, of course, has changed too. Index tracker funds are
very popular with the general investing public and the majority of these
funds follow the market with automated stock trading software.
Such funds require very low fees. One of the big selling points for index tracking funds is that the cost of management is kept to a minimum. To keep costs so low, the fund managers either need to automate and spend less on wages, or make smaller profits. Clearly only one of those options is acceptable for fund management firms!
There is also a "halfway house" which is known as portfolio tilting. This enables fund managers to have some human input into a portfolio but the majority of the work is pre-programmed.
Software of this nature is obviously not free, or cheap. The big money managers spend incredible amounts of money on analysis and testing to ensure their systems do a good job. This means that they guard their intellectual property very closely. After all, if you could automate making tons of money, would you want to share?
For this reason, your author has never seen a commercially available automated stock trading software system. Quite possibly, there never will be one. Should one become available though, it is unlikely that the average man will be in a position to afford it. That means that for now, making money in the stock market needs to be worked at and studied.
There are a number of "forex robots" available for individuals to buy. Superficially at least, these would seem to have their similarities. Your author knows someone that trades forex most days, who says that so far he has not found a robot that does a good job. As mentioned above, the real issue is that should one of these tools really do well, it would be very expensive, or will never be commercially available.
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