As reported by The Wall Street Journal’s Stephen L. Bernard, and referred by Edgar Perez, author, The Speed Traders, during his presentation in Singapore, retail investors are fast-growing segment of currency market. While Walter Peters was enjoying a hike during a recent holiday in Tasmania, a computer back at his Sydney home was keeping an eye on the U.K. pound, executing trades, and ensuring that he made enough money to pay for the vacation. The 38-year-old American living in Australia is an early adopter of the latest, and some say risky, trend in the rapidly growing world of retail online foreign-exchange trading: algorithmic trading for little guys.
Known in the online retail foreign exchange world as “expert advisers,” or EAs, new programs are now available for individual investors that will automatically determine the ideal moment to trade based on historical prices and then execute the transaction without the owner’s involvement in the decision. Costing as little as $108 to install, the software is bringing mom-and-pop investors into a world that until now was dominated by hedge funds and investment banks that had access to expensive proprietary high-frequency trading systems.
“I had it running while on vacation,” said Peters, a trained experimental psychologist who now makes all his income managing money for his own account and those of clients. His expert adviser makes some 30 trades a week for him, but he typically only checks the account’s performance twice a week. EAs also allow customers to get away from their computers to avoid the sleep deprivation that can result from trying to stay on top of a 24-hour-a-day currency market, Peters said.
If the idea of a magic machine making money while the owner sleeps and pursues leisure activities seems too good to be true, that’s because there are real risks that something could go wrong. And if it does, the losses can be amplified by the high leverage that’s needed to make retail foreign exchange trading viable in a market dominated by large institutions.
For now, however, many investors are ignoring those risks and enthusiastically adopting the new systems. “EAs have really exploded on the scene in the last two years,” said Robert McKeon, senior vice president of markets and liquidity at New York-based online retail trading platform FXDD.