Do you know the risks and opportunities of highly automated trading strategies in financial markets?

FTMO Trader Scouting

Frazkq

New Member
Risk and Opportunity of Automated Trading

Automated trading systems come with inherent risks that should be considered before deciding to utilise them. These risks include technology failures, market volatility, systemic risk, over-optimization, lack of transparency, and regulatory scrutiny.

Technology failures are a concern because automated systems rely on complex software and hardware. Any malfunction could result in losses, such as failed order executions or incorrect pricing.

Market volatility is another risk associated with automated trading. The high-speed nature of automated traders can lead to rapid market fluctuations as they swiftly enter and exit positions.

Systemic risk arises when numerous automated traders adopt the same strategy. If this strategy fails, it could cause widespread losses, possibly triggering a market crash.

Over-optimization is a potential issue with automated trading strategies. While they may perform well historically, they might not prove as effective in real-world trading scenarios.

Moreover, the lack of transparency in automated trading strategies makes it challenging to comprehend how they operate. This opacity hampers the assessment of associated risks.

Automated trading also faces increased regulatory scrutiny due to concerns about market volatility and systemic risk.

On the other hand, automated trading offers several opportunities, including speed and efficiency. The ability to quickly identify trading opportunities and execute orders sets automated traders apart from their human counterparts.

By minimising emotional influence, automated trading can lead to more objective decision-making, reducing biases like fear and greed.

Increased liquidity is another benefit, as automated traders often deal with large asset volumes, contributing to price stability.

Furthermore, automated trading can foster the development of new trading strategies that were previously unavailable to human traders, presenting new avenues for profit.
In terms of risk management, automated trading can be programmed to adhere to strict rules, enhancing risk management practices.

Moreover, personalised automated trading allows investors to tailor strategies to their individual needs and risk tolerance, facilitating more effective goal achievement.

Ultimately, the decision to adopt automated trading strategies is a personal one, necessitating careful consideration of the risks and opportunities involved. Seeking expert advice and information from reliable sources like KQ Markets can be helpful in making an informed choice.
 
The potential risk involves the need for continuous monitoring and system support to avoid unforeseen situations.
 
Many of the issues about strategies run by automated agents is that they are not guaranteed.

The scientific methodology allows it and it is very easy to evaluate and give the number of average wins and losses a robot will produce. Same as drugs, for instances with a lot of stats, hypothersis tests, ROC type metrics, etc...

If the metric is not consistent, means the robot is not sufficiently generalized to trade markets and commerce should not be allowed for it.
 
Many of the issues about strategies run by automated agents is that they are not guaranteed.

The scientific methodology allows it and it is very easy to evaluate and give the number of average wins and losses a robot will produce. Same as drugs, for instances with a lot of stats, hypothersis tests, ROC type metrics, etc...

If the metric is not consistent, means the robot is not sufficiently generalized to trade markets and commerce should not be allowed for it.
What are your thoughts on the regulation of automated trading robots in the financial sector?
 
Basically: No positive minimum specific profitability besides full initial investment return guarantee, no license.

It is a fallacy that trading cannot be guaranteed, only those who do not have an edge can say it. There are a million ways one an validate statistically a setup and provide a thousand metricts that would allow to say exactly which will be the gain for next year with a reasonable confidence interval.

And guarantee it, therefore.

Do you imagine your car maker does not guarantee that your wheels will rotate if you press the accelerator? And if it does not work, then, that car maker saying: "ok, it is your investment, it is at your risk".
 
Last edited:
FTMO Trader Scouting
Back
Top