The Death of The EA: Why Trading Robots are No Longer in VogueOnce all brokers flocked to accommodate EAs. Now we live in the age of the empowered and analytical trader.
“Never underestimate the power of the human element,” said Ramez Faza Senior, one of the executive Account Managers at global customer satisfaction survey company JD Power & Associates.
When such obvious and basic notions of common sense emanate from one of the world’s most feared and respected consumer data firms, it should be taken at face value. It is on this company’s survey results that many luxury European car manufacturers find themselves languishing at the very bottom, below the cheaper, more mainstream efforts from Japan and Korea.
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Embarrassing? yes. Fixable? Certainly.
Poignant to our industry, Rasheed Ogunlaru, Author of Soul Trader said “Until you understand your customers — deeply and genuinely — you cannot truly serve them.”
He is indeed correct.
Thus, it is clear that despite being very much an online, fully computerized ecosystem from the top tier banks that provide liquidity right through to the trading platforms that are so well honed that global markets can be accessed from anyone’s living room almost anywhere in the world and trades executed with millimetric precision, the human aspect is vital.
Just a decade and a half ago, however, many retail FX industry participants, especially those brokers which do not have their own trading infrastructure, made great efforts to accommodate trading robots, known in the FX industry as ‘Expert Advisors’.
These take the form of a software code, which is then connected to a trading platform, executing trades automatically on behalf of the trading account holder, removing the need to master the markets or become a trader.
Many of such Expert Advisors, or EAs as they became known, had no provenance, were developed by individuals who were often affiliate partners of offshore FX firms therefore having an interest in coding in such a way that investors see it as a convenience, yet it gradually loses their money so that the affiliate commission can be paid on a profit/loss basis rather than on a commission basis, and there were very little means of testing or verifying the strategies that they follow.
By 2008, an entire EA marketplace had opened up, even to the point at which FX portfolio managers in South East Asia were connecting multiple accounts to MetaTrader platforms via the MAM system and trading over 90,000 lots per month in small offices in provincial towns, with all trading activity conducted via EAs.
Many retail FX brokers began focusing heavily on the lucrative and high-volume Chinese portfolio management market, in which many FX portfolio managers were bigger than the brokers to whom they sent their flow.
Meanwhile in Japan, the world’s largest retail FX trading market with Japanese FX trading having made up 35% of all retail order flow globally for the last 15 years, nobody uses EAs, every trade is conducted manually, and MetaTrader 4 barely exists.
By comparison, Japan’s self-directed traders steadily trade to profit, there are no large burnouts and even when the government lowered leverage in 2012 to 25%, traders simply put more margin capital into their accounts, saw it as a move toward stability, and traded even more. By 2013, the largest companies in Japan, DMM Securities, GMO and Monex were reporting over $1 trillion in notional volume per month per company, all by self-directed traders using proprietary platforms.
Now, with China off limits, the more self-directed Western markets are a key focus.
Traders who were new to the world of currency markets a decade ago are now astute, knowledgeable and sophisticated, and require continual increases in technology from their brokers.
Whilst they still exist, the popularity of EAs has dwindled, as many astute traders realize that they are often either vehicles for transmitting advertisements as they are free to download, or are coded by opportunists, or even worse, are designed to lose money for the combined benefit of the developer and the offshore unlicensed broker that is paying loss-based commission.
Today, analytics platforms are much more in vogue. These being carefully developed systems which do not execute trades but provide automated actionable content in order that traders can quickly and concisely access valuable market information in order to make informed decisions on what instruments to trade and what is trending in the market.
Many traders have mastered the trading platform, and are therefore no longer dependent on obsolete third party platforms that are simply popular because of the number of EAs that are available to connect to them.
The internet is awash with calls for help from people who have relied on an EA which has led their account to loss and lack the confidence or analytical skills to recover it due to the reliance on an EA which in many cases has been coded by a private individual to whom there is no recourse.
This conflict of interest is also one of the reasons that social trading became a thing of the past to a large extent.
As long ago as 2015, a British wealth management company sent a questionnaire to its clients asking whether they would be prepared to pay for a low cost online automated ‘advice’ service. The answer was a resounding no.
It had been suggested at the time that such a service would cost between £100 and £400 and considered widening its existing non-advised portfolios into a wider advice proposition.
The firm’s CEO of the time stated “People do not want to pay for advice. There is no chance that robo advisors or EAs are going to replace self-directed traders” he said, concluding that robo advice or EAs will not replace execution only platforms.
Back in 2015, A.T. Kearney, a global management consulting firm that focuses on strategic and operational CEO-agenda issues facing businesses, stated that there would be approximately $2.2 trillion under management by robo advisors in 2020, equating to a staggering compound annual growth rate of 68%.
That did not happen, and it is still only $797 billion globally. Robo advisors and EAs are certainly not the flavor of the time that they were 10 years ago.
British traders are loyal to their broker, highly analytical and go to extensive efforts to continually learn the market, and to expand their ability to maximize the use of trading platform features.
Thus, to be able to keep a toehold in the very upper echelons of electronic trading, your broker needs to be able to offer a good quality, in-house supported and developed trading environment and to provide all the right tools and information to empower traders.
Today’s traders are hands-on, and want their broker to be hands-on too.
It is the constant development of user experience and comprehensive access to comprehensive multi-asset global markets via a finely honed environment, supported by knowledgeable and responsive staff that will lead today’s brokerage to sustainability.
We at ETX Capital have a longstanding and secure basis for exactly this, having been in business for over four decades, and having developed, evolved and maintained our own trading environment toward your trading experience.
It is vital that we continue to consider you, the trader, as the focus of our efforts. After all, trading is a human science, just as it is a computer and mathematical science.
Risk warning: Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74.5% of retail investor accounts lose money when spread betting or trading CFDs with ETX. You should consider whether you understand how spread bets or CFDs work and whether you can afford to take the high risk of losing your money.
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