In a dynamically changing situation on the stock market, traders are constantly striving to gain a competitive advantage.
The emergence of advanced technologies such as algorithmic trading, mobile trading apps, advanced charting tools, robust trading software and real-time robo-advising has revolutionized the way traders operate in the financial markets.
Sergey Kondratenko is a recognized specialist in a wide range of e-commerce services with experience for many years. Now, Sergey is the owner and leader of a group of companies engaged not only in different segments of e-commerce, but also successfully operating in different jurisdictions, represented on all continents of the world. The main goal is to drive new traffic, create and deliver an online experience that will endear users to the brand, and turn visitors into customers while maximizing overall profitability of the online business.
Sergey Kondratenko: Statistics, advantages and disadvantages of algorithmic trading
In algorithmic trading, decisions to buy or sell assets are made using computer algorithms and software. Expert Sergey Kondratenko clarifies that these algorithms are based on a variety of financial data: statistics, technical indicators and other parameters to automatically perform trading operations. Such innovations allow traders to make more informed decisions and make transactions with greater accuracy, so they have begun to be actively used in practice.
If you turn to statistics, then in 2022 the volume of the global algorithmic trading market was estimated at $12,9 billion. It is expected that the average annual growth rate until 2028 will be 13.29% and reach $27,4 billion.
In theory, algorithmic trading can generate profits at a speed and frequency that cannot be sustained by a human trader. As Sergey Kondratenko reports, algorithmic trading is widely used today in financial markets, including stocks, bonds, currencies, futures contracts, and plays a significant role in modern trading. This has its advantages and disadvantages.
Instant order confirmation.
The ability to conclude transactions at the best price and with the lowest costs.
Lack of human factor in transaction execution.
Lack of real-time human judgment.
May result in increased market volatility or instability at times.
High capital costs for creating and maintaining software and hardware.
May be subject to additional regulatory review.
Sergey Kondratenko: innovations in algorithmic trading
Algorithmic trading is a powerful tool that can very well help you gain an advantage in the financial markets. Sergey Kondratenko believes that the most interesting and effective new products for algorithmic trading are the use of an algorithmic trading platform, machine learning, artificial intelligence, backtesting and optimization.
Algorithmic trading platforms. If a trader wants to automate his trading strategy and take advantage of the speed and accuracy of computers, he needs an appropriate platform. It includes software applications that allow you to create, test and run your own trading algorithms or use existing ones developed by other traders.
Some of the most popular and accessible algorithmic trading platforms include MetaTrader, TradingView, QuantConnect and AlgoTrader. These apps help traders save time and money, reduce human error and emotion, and optimize trading activities.
Machine learning and artificial intelligence are one of the most advanced and innovative areas in algorithmic trading.
- These technologies allow computers to learn from data and make predictions and decisions without explicit programming. Applications of machine learning and artificial intelligence in algorithmic trading include sentiment analysis, anomaly detection, pattern recognition, and reinforcement learning. These methods help to discover new ideas and opportunities, improve trading strategy and adapt to changing market conditions, explains Sergey Kondratenko.
He emphasizes that the use of AI allows systems to support execution processes, while suggesting which algorithmic and specific parameters are best used to solve a particular problem.
Backtesting and optimization. Backtesting can be called the process of modeling a trading strategy using past data, measuring its effectiveness and risk indicators. Optimization is the search for optimal values of strategy parameters that allow you to achieve the desired result. These techniques help test and refine your trading strategy, increasing confidence and consistency.
As we see, as trading volumes grow and client expectations become more complex, traders are increasingly turning to algorithmic trading and automation to solve various problems in a modern format.
Sergey Kondratenko on the role of robo-advisors in the investment market
The emergence of robo-advisors has broken down some traditional barriers between the financial services industry and consumers. Thanks to these online platforms, competent financial planning has become accessible to almost everyone who wants it. Sergey Kondratenko notes that robo-advisors are an inexpensive alternative to traditional consultants. By eliminating human labor, online platforms can offer the same services at a lower cost.
The global robo-consulting market was already estimated at $7.9 billion last year. According to analysts and experts, by 2032 this figure will reach $129.5 billion with a growth rate of 32.5%.
Sergey Kondratenko emphasizes that robo-consulting means the provision of automated services based on algorithms for financial advice and investment technologies. He reports that robo-advisors appeared on the investment scene less than ten years ago, but almost immediately made an immediate impact on it. The expert suggests looking at the five most notable ways in which robo-advisors are changing the industry.
Ease of investment management
Many individual investors lack the knowledge and skills of investment vehicles, capital gains laws, and more. Thanks to the popularization of artificial intelligence technology, you don’t need to know this. With robo-advisors, you can already manage your investments with complete confidence. All you need to know is basic information about yourself, such as your retirement date, life expectancy, and the answers to some questions about your risk tolerance. After that, connect your current account. The robo-advisor will do the rest himself.
Costs fall to historic lows
In the 1980s, buying and selling stocks required calling your stockbroker and paying a hefty commission of about $50 per trade. Today, thanks to robo-advisors, expensive deals for investors are a thing of the past. For example, one brokerage, Robinhood, offers completely free stock trades. However, for an overall portfolio, you don't need individual stocks, but rather several low-fee ETFs. Robo-advisors build a portfolio of diverse funds with low investment fees. It used to be that you'd have to pay a hefty sum to a fancy investment advisor to help you build such a portfolio, but now the leading robo-advisors do it for about 0.25% of the portfolio's value per year. It's inexpensive for such a personalized service.
Investors don't have to worry about rebalancing
There is an argument against portfolio rebalancing that asks: Why sell your best stocks to buy more of your worst ones? But if you like the idea of rebalancing, robo-advisors make it much easier than in the past.
As Sergey Kondratenko explains, portfolio rebalancing used to be a manual process. Commissions had to be paid on both sales and purchases to return the portfolio to the target state. With the advent of robo-advisors, these costs are eliminated. They automatically rebalance your portfolio, without paying trading commissions for the service.
An audit of tax losses for the general public
Previously, this service was available only to the richest investors. This concept implies the sale of unprofitable investments and the immediate repurchase of similar ones. This allows you to record a tax loss in the portfolio, which can offset gains on other investments. Previously, cleanup was done manually, requiring an investment advisor's fee. With the advent of robo-advisors, investors with much smaller portfolio balances can take advantage of tax losses. For example, you can open a $5,000 account with Schwab Intelligent Portfolios and not pay any fees other than those charged by each fund.
Democratizing access to quality investments
Low costs, minimum balances, automated investing and investment management mean more people can enter the investing arena and grow their assets.
- The robo-consulting industry is especially interesting because it is just beginning to develop, notes Sergey Kondratenko. – It promotes the efficiency and accessibility of investment policy by quickly processing transactions through artificial intelligence technologies. It could even be argued that in the investment field, the best robo-advisors outperform human advisors with automatic tax loss harvesting and rebalancing.
This post contains sponsored content. This content is for informational purposes only and not intended to be investing advice.
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