I wonder how many investors will really understand what the program is doing and how much risk they are taking.
Your Portfolio on Autopilot Brokerages Roll Out Software
To Automate Trading Strategies; Risks of Becoming a 'Quant'
September 30, 2006
One of the most powerful and risky investment tools available -- software sophisticated enough to actually trade on your behalf -- is starting to trickle down to the little guy.
Previously, tools like these were the exclusive domain of whiz kids with Ph.D.s hired to design complex trading algorithms for hedge funds and giant institutional investors. Known as "quantitative" strategies or "program trading," it involves setting up specific sets of rules -- say, buy 100 shares of Stock X if the Dow rises a certain amount for several days in a row -- based on intensive data-crunching.
But now, in a race to keep up with the pros, a host of brokerage firms are starting to offer services like these to regular investors. The most elaborate can execute complex strategies involving stocks, options and currencies all at once and without any human intervention, which makes them not only powerful, but potentially dangerous if the investment strategy is poorly designed.
