INVESTING21/02/2022

Is automated investing a good idea?

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Is automated investing a good idea?Is automated investing a good idea?Is automated investing a good idea?

Automated investing is one of the last innovations of financial technology. Learn more about automated investment on Fineco's Newsroom.

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Automated investingRobo-advisorInvesting


7 min reading

Automated investments: how they work and when to use them

Advanced digitalisation is changing the world of finance, with the ever-increasing use of robo-advisors and automated investments. This is happening not just in large finance companies and with institutional and professional investors but also with retail investors and small traders.

Robo financial advisor services are becoming more and more sought after by private investors. However, it’s important to approach financial technology in an informed and conscious manner. In fact, the wide range of automatic trading options requires a certain amount of caution in order to understand how to use these services to obtain an effective advantage in investment activities.

How robo-advisors work

A robo-advisor is a tool that helps to start investing, a software that invests automatically in place of a real person. Obviously, these programs need to be configured by a financial analyst who sets up the software following specific parameters, taking into account the investment objectives and the risk profile.

It is an alternative to the classic human financial advisor, insomuch as you can manage online investments easily and quickly by simply providing various information on your financial objectives. Naturally, there aren’t just robo-advisors in the automated investments sector as various options are available.

These kinds of services include, for example, trading signals, softwares that analyse financial markets and supply investment indications based on selected parameters. The same applies to algorithmic trading scripts, programmes that can be independently managed by the investor and that allow to carry out investment transactions without manually executing the order.

How to automate investments?

To automate investments in the UK, there are various options. One solution is turning to a robo-advisor service by replying to a number of questions to determine objectives, risk tolerance and the capital to be invested. Subsequently, the platform will begin to invest money in a series of instruments, generally ETFs, shares and bonds, managing the portfolio to keep it in line with defined targets.

Alternatively, you can use trading signal services by only automating the technical analysis part to allow a software to monitor the markets in order to identify investment opportunities. Otherwise, you can create your own script for investing on the stock exchange or turn to a specialised programmer and using the program through your own online trading platform.

The efficiency and functionality of an automated investment system depend on the complexity of the software used, with results that are in line with the financial robot’s sophistication. Because of this, the best programs are also the most expensive ones, especially when you want a completely personalised software.

Less expensive services are trading signals, whereas free options are automatic orders that allow to set stop loss and take profit orders to automatically liquidate positions once a set values for asset prices has been reached. They are essential risk management tools, available on the best online investment platforms.

Are automatic investments a good idea?

Often, beginner investors that start to invest on the stock exchange ask themselves “How can I automate my portfolio?”. If you are also asking yourself how you can automate investments, firstly you must understand whether it is a good idea by carefully weighing up the pros, cons and limitations of this technology.

Automatic investment systems can:

  • Monitor the financial markets
  • Check asset values in real-time
  • Provide personalised insights
  • Invest on the investor’s behalf

What these programs cannot do is act like a financial advisor or an informed investor if, for example, after a loss you decided to completely rebalance your portfolio.

Undoubtedly, tools like robo-advisors can be useful in investment activities as they allow for a series of repetitive transactions to be simplified, for example, by monitoring assets in the investor’s place to avoid having to spend the whole day in front of a PC screen. At the same time, they require informed usage, paying attention to the limitations of these technologies.

Despite the greater sophistication achieved by automated trading softwares, human beings’ role remains essential in many circumstances. Even in big investment banks there is human monitoring of automated system functions. We must know how to benefit from the potential and advantages of this technology, without underestimating the crucial role played by professional expertise, as well as the experience and decisions of a real-life investor.

Information or views expressed should not be taken as any kind of recommendation or forecast. All trading involves risks, losses can exceed deposits.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 70.82% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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These articles are provided for information only, these are not intended to be personal recommendations on financial instruments, products or financial strategies.

If you’re looking for this kind of information or support, you should seek advice from a qualified investment advisor.

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