System trading or robots in the stock market
During the global economic crisis, the viability of systematic trading, which was heavily criticized from the very beginning of its existence, was confirmed by numerous facts. In particular, one of the most effective financiers, according to Forbes rating, was the owner of Renaissance Technologies fund James Simons, who managed to earn $2.8 billion in 2008. He managed to earn $2.8 billion in 2008. James Simons has successfully put into practice system tradingAt the Renaissance Technologies fund that he manages, all trading is done exclusively by computers, and not traders, but programmers and scientists involved in creating trading robots for trading are hired.
"Robotic trading - a very current trend on Wall Street that has allowed a handful of traders to dominate the market, controlling its movements and, critics say, even subtly manipulate it. Unexpectedly, robotized trading has turned out to be one of the most discussed and mysterious forces in the market," The New York Times said in an article. - This is where all the money is made," said William Donaldson, former chairman and president of New York Stock Exchange (NYSE)Today he is an advisor to a major hedge fund. - If individual investors can't keep up with the new realities, you can only sympathize with them.
The vitality of systematic trading is indirectly confirmed by the growing share of stock exchange transactions made by robots on the world's major exchanges. The percentage of robot deals made on the LSE at the end of last year was more than 30%. On the NYSE in June, nearly half of all trades (48.6%) were made by robots. The volume of trades made by robots on Deutsche Borse exceeded 43%. Russia is not lagging behind the general trend: the share of robotized transactions on MICEX, according to some estimates, reaches 30% and tends to increase.
It should be noted that exchanges, as a rule, refer to the bids placed by robots only those bids that are based on the reaction to rapid changes in the markets (placed with a frequency of up to several times per second). Of course, algorithms are also used for less active trading, but in this case the exchange cannot distinguish between the order, generated by the robot, and the manually placed order.
These facts suggest that the financial world exists in a new reality, where investment decisions are made by machines in fractions of a second. Western companies and funds that manage capital with systematic trading (so-called "quantitative" funds, Quant Funds), have existed since the beginning of the decade and have been able to achieve considerable success. By the middle of the decade almost all major investment banks had such funds, including Goldman Sachs, ABN Amro, JPMorgan, Barclays Capital, etc.
However, representatives of major management companies generally do not consider the use of systematic trading as a competitive advantage and recognize the low interest of clients in this area. The prevailing opinion among market experts is that the client will never trust the system, because for him the contact with a real manager is important. That is why companies that use system trading for money management try to use such terms as "active investment strategies," "effective risk management," etc.
Moreover, according to experts, the distrust of the "black box" is too strong in the Russian consciousness, which is a barrier in deciding which company to entrust with the management of their money.
The company that enters the market with an offer of trust management services through system trading raises the following question: to what extent the potential client, who is not a professional financier, is ready to accept the information that his money will be managed by trading algorithms?
EuroInvest Investment Company conducted a market research, one of the objectives of which was to get an answer to this question.
The study included qualitative and quantitative stages. At the first stage, interviews were conducted with potential and actual consumers of trust management services. The result showed that the majority of the interviewed respondents is not aware of mechanical trading systems. However, after the specifics of this approach to money management were explained, the distrustful attitude to systematic trading changed to an interested one.
The unconditional advantages of fiduciary management with the help of the system tradingThe respondents believe that the advantages of the system, as compared to classical trust management, are greater opportunities, efficiency and effectiveness of the system in the implementation of a more active trading strategy, as well as risk minimization through the use of strictly formalized algorithms and the elimination of the "human factor" in making investment decisions.
The second stage of the study was a quantitative survey. To this end, 980 telephone interviews were conducted among respondents with a monthly income of more than $5,000 per family member. It turned out that 16% of those surveyed have confidence in the possibility of applying mathematical methods of trading in the stock market and, therefore, are potential consumers of the trust management service with the help of system trading.
After expressing their willingness to use the service of trust management with the help of system trading, the respondents identified the following criteria for choosing the service as the most important:
* System trading allows you to level out the risks associated with the human factor;
* the service is able to provide a certain level of profitability over a number of years;
* this is a more modern approach to working on the stock market.
In general, the argument of supporters of systematic trading, that the only objective information on the stock market is the previous changes in the prices of financial assets, is perceived by the target audience with understanding and approval.
Based on the study we can conclude that the Russian consumer of financial services is ready to accept information about money management with the help of trading algorithms, and, therefore, there is a promising segment of the trust management market, based on system trading.