Algorithmic Systems Trading – The Modern way of Trading

Algorithmic Systems Trading is sometimes confused with some impossible to understand formula that is too complicate to trust. In reality it is just a fancy way of describing the combination of trading using the advantages of computers, mathematics and statistics. It is a scientific approach to investing based on technical analysis and is typically characterised by many trades held for short periods of a few days. Thus, using what is called the law of large numbers, enough wining trades will end up outweighing the losing trades leading to a positive return for investors.

Is this high level of trading available to everyone?

An initial concern investors may have is that this type of high-end investing would only be available to high net worth clients having millions to invest. In reality companies like Novofina which are so called FinTech (Financial Technology) and WealthTech (Wealth Management through Technology) companies make this type of investing available to investors willing to allocate at least €30,000. These sort of companies are bringing high-end investing previously reserved just for elite clients to the retail space.

Novofina, which is licensed by the Malta Financial Services Authority, applies algorithmic systems trading to investing in US large capital stocks, the so called blue chip companies. These are the largest companies quoted on the US stock markets, companies like Amazon, McDonalds, Apple, Exxon Mobil and the like. The company combines different systems that trade based on different criteria such as stochastic systems, Bollinger bands and other technical analysis schools. It combines these different strategies to make up its two main products which clients can invest into. So as opposed to trying to invest on their own based on some gut feeling or long term expectation that may never come to fruition clients get access to cutting-edge computer based equity selection. Best of all the systems operate on their own without the need for client intervention except to decide on how much to invest and what level of risk they are prepared to take on.

Is this a get rich quick scheme?!

Definitely not. Investing in shares has historically been the best form of investment time and time again. However, it is still a long term investment for clients having a minimum 5-year investment horizon. Looking at the returns on equities versus bonds (gilts) versus retail prices between 1899 and 2011 (thus including the great depression, the world war periods and the 2007/09 financial crisis), as reported by Barclays Bank, it is clear how much better off equity investments are over the long term:

By investing smartly into the equity market using such systems employed by Novofina you will not turn €50,000 into €500,000 within a year. That sort of return is not sustainable and would be too risky to attempt to achieve in a short period of time. Nonetheless, turning €50,000 into €500,000 over a ten year period for example is very much possible. This is particularly interesting given the current interest rate scenario whereby we are finally starting to see central banks increase interest rates following a prolonged period of virtually 0% rates. Keeping in mind that prices of bonds move inversely to interest rates, should there be an indication that the European Central Bank could be increasing its base rate all local bonds (especially the longer dates ones) would suffer a fall in price. We have already started to see some “risk-on” movement with the prices of Government Bonds across the EU countries falling in price. This appears to be happening due to an improved appetite for risk whereby investors are selling their government bonds and opting for investments that are perceived to be riskier, such as shares.

Therefore, considering a shift into an equity based investment such as the algorithmic systems based products mentioned in this post could prove to be a well-timed investment decision. Adding equities to one’s portfolio has been proven historically to offer a better balance and overall higher average return. By doing it wisely, using statistically proven methods which are objective as opposed to a human traders’ subjective tendencies, one has a better chance of managing the downside and benefitting from the upside.

The Bottom Line

Algorithmic systems trading is nothing to fear and is based totally on statistical real returns. It is considered by many to be the best investment method available since it uses the latest stock-selection methods which consider many important characteristics of trading successfully such as entry points, profit targets, maximum holding periods and batch sizes. Combining all this and achieving lower risk through diversification of the investment portfolio should prove to be a long term winning formula for any investor. Best of all, such products are already available locally through Novofina starting from a low minimum investment of €30,000.

* This post was issued by Kyle Debono, Managing Director and Portfolio Manager at Novofina Ltd. The information, views and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Novofina Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this link. Please refer to usual general disclaimer here.