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 profitable ones.

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 investments

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 broker.

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.

Understand investment basics

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 with them.

Shop around and test the trading software

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.

Smart tip

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 products.

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 market conditions.

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 not.

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 averages.

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 in.

Related links

Last updated: 24 Oct 2018