Investment trading software
Programmed for profit?
Some investment trading software programs suggest you can make
lots of money through active share trading. Be careful about
believing such claims.
Here are some home truths about these programs that are often
sold in investment seminars.
Beware of guaranteed returns
using trading software
The bottom line is that no investment trading program can
guarantee you'll make money. No one has found the magic mechanism
to sure-fire profits. Anyone who encourages you to think they have
is someone to avoid.
Sometimes the advertised performance of investment trading
software may be based on simulated or hypothetical trading, not
actual trading results. They may not factor in costs such as
commission, spreads and real (actual) pricing, or the cost of
buying the program or training.
Some of Australia's major investment managers, stockbrokers and
institutions have millions of dollars worth of computer power to
help them invest. But they still make losing trades as well as
So beware of promoters of software who:
- promise high returns over a short period
- don't disclose the potential losses and risks of actively
trading shares and futures
- provide examples of large profits made by investors who have
used the program.
Watch out for churning of
Churning happens when the software provider encourages you to
make lots of trades. With every trade you pay a commission -
so churning generates more commissions for the provider or
Understand how the provider makes money from your trades and how
the trading system works generally. Make sure you aren't 'churned'
by the provider to increase their profit at your expense.
Work out whether you really need the program and whether it fits
within your investment goals. Think
about what you want to achieve with your investments and what is a
realistic timeframe to achieve it in. Long-term investors are
unlikely to need such software.
Find out about shares, futures and how the market works before
you spend a lot of money on fancy tools that offer short-cuts.
Consider if you've got
time to trade
Only commit if you have lots of time to devote to trading.
Professional traders who have a lot of expertise in valuing and
trading shares spend hours every day studying the market. Even
then, they find it difficult to consistently make profits from day
trading. Ask yourself if you have the knowledge and time to compete
Shop around and test the trading
Some programs cost thousands of dollars. They may not be good
value for money. A program costing only a couple of hundred dollars
may be much better for you.
Research and test the trading software thoroughly before you buy
it, to see if it is right for you.
Read reviews of the program online or in computer and investment
magazines. Ask your investment adviser about different
Insist on a full demonstration before buying. See if you can
test it at home over a couple of weeks doing imaginary trades.
Otherwise ask for a complete list of all trades the system has
recommended over the past 2 months (both buying and selling).
Find out if anyone has independently tested the program in real
Find out what the costs of day trading are. Remember you will be
paying fees every time you make a trade - whether you make money or
Check what trading tools your
online broking site offers
Online broking websites offer plenty of tools to help you
research your trading, including:
- analysts' reports and recommendations
- financial data from past annual and semi-annual reports
- earnings forecasts for the next few years
- charting tools that show share price performance against moving
Some sites also offer free conditional orders, such as stop loss
(where you set a sale price that will protect you against sudden
price drops) and rising sell (where you set a sale price based on a
level of profit you'd be happy to exit the investment with).
If you get to know what your online broker offers for free you
might decide it's all you need. Contact them if you have questions.
They earn money whenever you trade, so they should take the time to
answer any queries.
Day trading in shares or futures is high stress
and high risk so beware of trading software programs that suggest
you can make a lot of money from active trading. Only use day
trading systems if you can afford to lose all the money you put
Last updated: 24 Oct 2018