Robo Advisor Trading Still Needs a Human Touch

E*TRADE Financial Corporation (ETFC) has announced the latest results of its quarterly tracking study of its investing community, StreetWise, which yielded several interesting preferences, including a propensity of support behind the utilization of digital guidance for investing, according to an E*TRADE statement.

As modern technology continues to evolve, more and more traders confront the reality of automated trading or robot-aided (bot) decision-making in their trades. E*TRADE’s StreetWise asked investors to essentially choose between three account types:

• Low cost, digital-only solution, managed and rebalanced solely by an algorithm
• Moderately priced, digital hybrid solution, automatic rebalancing and human guidance
• Higher cost, advisor-driven account, managed solely by a professional

Interestingly, investors opted overwhelmingly to choose the middle solution, which relies on a hybridized model with automatic rebalancing as well as retaining a human component. It is worth noting that while many traders seem to have embraced the advent of technology, they still yearn for a ‘human’ touch in some capacity, even incurring a slightly higher cost in the process. This preference was particularly pronounced amongst Millennial and Gen X investors, many of who have grown up with computing technology for their entire lives.

The results also help lend credence to investing products as a whole, as individuals do not rely strictly on active or passive managed instruments. This explains at least partially why passive options such as Exchange Exchange An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectively relevant with real-time pricing.Depending upon where you reside, an exchange may be referred to as a bourse or a share exchange while, as a whole, exchanges are present within the majority of countries. Who is Listed on an Exchange?As trading continues to transition more to electronic exchanges, transactions become more dispersed through varying exchanges. This in turn has caused a surge in the implementation of trading algorithms and high-frequency trading applications. In order for a company to be listed on a stock exchange for example, a company must divulge information such as minimum capital requirements, audited earnings reports, and financial reports.Not all exchanges are created equally, with some outperforming other exchanges significantly. The most high-profile exchanges to date include the New York Stock Exchange (NYSE), the Tokyo Stock Exchange (TSE), the London Stock Exchange (LSE), and the Nasdaq. Outside of trading, a stock exchange may be used by companies aiming to raise capital, this is most commonly seen in the form of initial public offerings (IPOs).Exchanges can now handle other asset classes, given the rise of cryptocurrencies as a more popularized form of trading. An exchange is known as a marketplace that supports the trading of derivatives, commodities, securities, and other financial instruments.Generally, an exchange is accessible through a digital platform or sometimes at a tangible address where investors organize to perform trading. Among the chief responsibilities of an exchange would be to uphold honest and fair-trading practices. These are instrumental in making sure that the distribution of supported security rates on that exchange are effectively relevant with real-time pricing.Depending upon where you reside, an exchange may be referred to as a bourse or a share exchange while, as a whole, exchanges are present within the majority of countries. Who is Listed on an Exchange?As trading continues to transition more to electronic exchanges, transactions become more dispersed through varying exchanges. This in turn has caused a surge in the implementation of trading algorithms and high-frequency trading applications. In order for a company to be listed on a stock exchange for example, a company must divulge information such as minimum capital requirements, audited earnings reports, and financial reports.Not all exchanges are created equally, with some outperforming other exchanges significantly. The most high-profile exchanges to date include the New York Stock Exchange (NYSE), the Tokyo Stock Exchange (TSE), the London Stock Exchange (LSE), and the Nasdaq. Outside of trading, a stock exchange may be used by companies aiming to raise capital, this is most commonly seen in the form of initial public offerings (IPOs).Exchanges can now handle other asset classes, given the rise of cryptocurrencies as a more popularized form of trading. Read this Term-traded-funds (ETFs) are not the most popular investing instrument, and that many portfolios typically feature a mix of more active constructs, along with the aforementioned passive instruments.

According to Kunal Vaed, Senior Vice President (SVP) of Digital Channels at E*TRADE Financial, in a recent statement on the results: “The data suggest a new paradigm in robo-advisory models: adaptive solutions backed by human support.”

The idea that younger investors will only gravitate towards the cheapest solution is a myth

“The idea that younger investors will only gravitate towards the cheapest solution is a myth. While intuitive and insightful digital tools are a necessity in catering to today’s investors, at the same time, investors seek human guidance. Investors want to be able to talk to a professional, especially during extreme market Volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders can be successful in both low and high volatile environments, but the strategies employed are often different depending upon volatility. Why Too Much Volatility is a ProblemIn the FX space, lower volatile currency pairs offer less surprises, and are suited to position traders.High volatile pairs are attractive for many day traders, due to quick and strong movements, offering the potential for higher profits, although the risk associated with such volatile pairs are many. Overall, a look at previous volatility tells us how likely price will fluctuate in the future, although it has nothing to do with direction.All a trader can gather from this is the understanding that the probability of a volatile pair to increase or decrease an X amount in a Y period of time, is more than the probability of a non-volatile pair. Another important factor is, volatility can and does change over time, and there can be periods when even highly volatile instruments show signs of flatness, with price not really making headway in either direction. Too little volatility is just as problematic for markets as too much, we uncertainty in excess can create panic and problems of liquidity. This was evident during Black Swan events or other crisis that have historically roiled currency and equity markets. In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Traders can be successful in both low and high volatile environments, but the strategies employed are often different depending upon volatility. Why Too Much Volatility is a ProblemIn the FX space, lower volatile currency pairs offer less surprises, and are suited to position traders.High volatile pairs are attractive for many day traders, due to quick and strong movements, offering the potential for higher profits, although the risk associated with such volatile pairs are many. Overall, a look at previous volatility tells us how likely price will fluctuate in the future, although it has nothing to do with direction.All a trader can gather from this is the understanding that the probability of a volatile pair to increase or decrease an X amount in a Y period of time, is more than the probability of a non-volatile pair. Another important factor is, volatility can and does change over time, and there can be periods when even highly volatile instruments show signs of flatness, with price not really making headway in either direction. Too little volatility is just as problematic for markets as too much, we uncertainty in excess can create panic and problems of liquidity. This was evident during Black Swan events or other crisis that have historically roiled currency and equity markets. Read this Term,” he adds.

“Machines are not taking over the world. Despite the rise in software, the data suggest human guidance and support still have an important place in the minds of investors. Value matters. Much has been said about how attractive low or no-fee platforms have become, particularly for younger investors. Yet results show that Millennials and Gen X are not entirely driven by cost. Many investors today are willing to pay more for a robo-solution that includes some human support,” he reiterated.