Technological advances have changed humanity by leaps and bounds and also the way we make money. The emergence of automated systems that use algorithms, capable of making decisions in a matter of seconds and executing them, has exploded into the financial markets in the last decade. It is estimated that more than half of the trading volume is carried out through supercomputers, which contrasts with the fact that only a small proportion of small investors use technologies such as trading robots or automated trading systems.
These types of tools based on algorithms, whose birth dates back to the 1980s, have become an undisputed ally of large investment banks and renowned firms such as Goldman Sachs, G.P. Morgan or hedge funds such as the prestigious Renaissance Technologies. “In the data centers of the large global stock exchanges there are many offices occupied by servers from banks and investment funds that need machines that are very fast to launch market orders in seconds,” explains Josep Ramon Aixelà, investment manager and professor of financial markets of the Institut d'Estudis Financiers (IEF).
“Originally, these systems were exclusive tools of large financial institutions, but over time, their accessibility has expanded,” comments Cristian Gómez. The CEO of Tradeasy assures that the arrival of automated trading, which consists of software that opens and closes operations based on pre-established parameters, “has radically transformed” the markets, increasing their efficiency and liquidity. And he adds: “These systems can process enormous volumes of data and execute trades at speeds that are impossible for humans, contributing to more accurate and faster price formation.”
However, he acknowledges that concerns have also arisen about market stability, especially in relation to events such as the flash crash of 2010, which led the US Dow Jones index to lose nearly 1,000 points in just a few minutes due to the massive sending of orders. of sale through an automatic system, which caused a false bearish sensation. Despite this, he maintains that automation “has revealed the gap between institutional investors, with access to advanced technology, and retail investors,” who must assume losses in the majority of their operations – specifically, more than 70%. of those who invest with CFDs or contracts for difference.
A failure rate that they claim is reduced by platforms such as the Spanish Tradeasy, which offers to design and operate trading robots without the need for programming knowledge. However, Gómez admits that “automatic trading, by its nature, cannot guarantee positive results,” since success depends “to a large extent” on the strategy, experience and adaptability of the trader in the face of changing market scenarios. Nor can it compete with Wall Street supercomputers capable of performing thousands of operations per second.
So, does the existence of these supermachines limit the small investor's possibilities of making money? "It is difficult for you to surpass these large investment banks or hedge funds, but I always give the same example: the shark is always accompanied by remoras that eat the leftovers it leaves, because this is what the little one has to do. investor," argues the popularizer and financial markets teacher Josep Ramon Aixelà.
The difficulty of automated trading in adapting to the uncertainty that often prevails in the markets is, according to investor and trading professor Francisca Serrano, the "big problem" of this system, since the robot "cannot foresee" such momentous events. such as "the fall of the Twin Towers or the war in Ukraine", which means "it does not react correctly" and, therefore, significant losses may be suffered. And she explains how at the beginning of her trading career she had a bad experience with an automated system when she lost almost all of the invested capital (10,000 euros) in one operation.
Despite the development of artificial intelligence and new technologies, the truth is that what has been effective until now can suddenly stop being effective, as the CEO of Tradeasey recognizes: "It is common in automatic trading to find a robot "that appears to be a winner and finds that its performance declines when market conditions change. This is a reality that many traders encounter: there is no guarantee of perpetual success with a single robot." Therefore, he argues that the solution involves "the constant evolution" of the robot community, "each one with different strategies and strengths" so that investors can diversify their operations and mitigate the risks that a changing market entails.
On the other side of the scale, advantages stand out such as the speed with which robots make investment decisions without being, as is the case with humans, under the influence of cognitive biases. Added to this is that they work uninterruptedly, operating in different markets and time zones; the diversification offered by managing multiple investments and assets, and the fact that, before trading in the real market, the investor can evaluate the trading strategy to be used. checking the result that would have been obtained in previous years.
"If you know how to use it, automatic trading can help a lot," says Aixelà, although he warns that "it is not a panacea," since profits are not guaranteed. At the same time, he highlights that "there are still manual traders [those who buy and sell listed assets without the use of robots] who make money." The old way always works, even if it is sometimes less efficient. Be that as it may, and regardless of whether a trading robot is used or not, the investor must have sufficient financial knowledge before risking his money in the markets, knowing what he is investing in and whether he has the appropriate profile for the type of investment chosen.
