Now and then somebody asks me a question about the automated trading systems or algorithmic trading. These are computer-based trading applications that are set up to automatically buy and sell financial instruments on your behalf.
Companies advertising them are saying something like this in their ads:
“Just relax and watch our automated trading system make money for you! Guaranteed!”
“Earn $3,000 a week trading commodities without lifting a finger. Your financial freedom is now within reach with [system name]!”
Imagine this: you subscribe to an automated trading system service and fund your account. From then on everything is automated. You can go to the beach and enjoy while the automated trading system works day and night and makes money for you.
The best thing of all, you can buy one for just $200. Some companies even offering them for free. A few days ago, I saw an interesting ad online. It said, “How I make $3,000 per day trading.”
I just love to check out these kinds of ads. You can always get a good laugh. With that one, I just couldn’t stop laughing when I watched the video on the website.
It starts with a beautiful woman in her 40’s driving a Jaguar, telling people how she makes a ton of money from home. Then she parks the car in front of a big, luxury mansion and goes in. She sits on a sofa and starts to describe how her late husband, who was employed in the secret service, gave her the secret technology that predicts the movements of the Forex markets.
Because she is such a good soul she already shared it with some of her friends, and now they are all insanely rich, driving sports cars, and drinking champagne. The technology is so amazing that you don’t even need to know how to use a computer to use it, as it does all the trading automatically for you.
Then comes the big revelation. Because she wants to help as many people as possible to become rich, she offers this technology for free. You just have to open an account and fund it with $1,000 on her platform. Wow! She has the most powerful technology that predicts the future and you will get it for free.
I just couldn’t stop laughing. The person who wrote the scenario for that video should be hired in Hollywood for making sitcoms.
Some people obviously make the investment. The typical customer is, of course, a young male dreaming of all the hot girls that will be attracted to him when he driving around in his red Ferrari convertible.
But in reality, the only thing automated trading system or algorithmic trading does is drain your account, and it does that very efficiently. The only people making money with automated systems of trading are the big banks, who probably work with systems worth hundreds of millions of dollars and have the fastest connections to the stock exchanges. Sophisticated systems plus a couple of nanoseconds advantage gives them an edge and that is all they need to make money.
The only thing automated trading systems do successfully is drain your account. Thinking that something like this would be available to the retail customers for a couple of hundred dollars is a serious delusion.
So, when somebody approaches you and offers you their new trading software, ask them why they are not on a tropical island living happily ever after.
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