Tuesday, October 22, 2013

Adventures in Autotrading Services

Currently, I have 3 ongoing trading initiatives:
  1. Discretionary:  Discretionary trading strategies -- primary swing trading stocks and stock options.
  2. Algo systems:  Develop and manage mechanical trading systems
  3. Autotrading:  Research and invest in autotrading newsletter services
One of my goals for this year was to explore "autotrading" services/newsletters.  Since "it" (auto trade, autotrading, automated trading, signal providers, trade copy, etc.) can mean different things to everyone, I'll define it as an alert newsletter service you subscribe to, which then executes their trade recommendations in your brokerage account automatically.

It's an interesting space -- somewhat between alert service and chatrooms on one end, vs. managed futures accounts and perhaps some types of hedge funds on the other end. 

NOTE: One key point -- like most chatrooms, autotrading services are usually not operated by registered investment advisors, so be aware of your risks (very high) and recourse options (very low).

One of the main reasons for investigating autotrading services is to try and diversify my trading "business" and to hopefully recapture more time for my family as well as non-trading goals.  We'll see if that's possible in such an all encompassing field such as trading, but I going to give it my best.

This year, I've participated in a handful of autotrading services in various asset classes, including index options, stock options, stocks, and futures.  This "experiment" was all conducted with actual live accounts, since ultimately, there's only one way to find out how a program performs.

The autotrading world is a much bigger business than I expected, and I've only scratched the surface.  But if you haven't yet explored it, here are a few ways to find out more.

I've found that the services are generally clustered around a particular asset class (such as stocks, options spreads, forex, etc.).  Here are some sources I've found useful for further research:
  • Google search "auto trade stocks" or "auto trade options" or "auto trade credit spread" or "iron condor newsletters" or whatever other keywords you can think of.  There will be tons of sites that come up.
  • Global-Autotrading.com - this company acts as the agent or middle man between the alert services/newsletters and your broker -- they take what the newsletter recommends, and executes the trade on your behalf at your broker.  You can see a list of all the newsletters they cover here.  For my autotrading program, I use this intermediary service linked with my brokerage account at Interactive Brokers (IB).
  • Dittotrade.com - this stock and stock options brokerage also acts as a autotrading agent.  See a list of newsletters and lead traders that you can follow on this webpage.  I have an account with Ditto, and have used the account with both a Ditto autotrade service, as well as a standalone brokerage account.
  • Pro-trading-profits.com - I'm not a member of this site, but they will take actual results from subscribers of newsletters, aggregate it, and provide that information to their subscribers.  You can see a list of what they track here.
  • Collective2.com - I have not used this site, although I know someone who has subscribed to some services they offer.  They are somewhat similar to global-autotrading.com, in which they act as the middleman between those who generate trading signals and your broker.  The autotrade section of the website is nicely designed, with the ability to quickly search for various systems and evaluate their performance.
  • Currensee.com - Another site which I have visited, but never utilized.  This site focuses on forex traders, and you can see the leaderboard here.
  • MyFxBook.com - Last but not least, this is another site focused on forex systems that appears to have recently offered a new autotrade service.  You can also see their most popular systems here.
  • Investimonials.com / forexpeacearmy.com - Many of the newsletter services you find above can be researched via these review sites.  I've actually contacted some people who posted comments on these sites and have gotten some great feedback.
Like many things, it was a somewhat of a fluke.  I accidentally received information about a iron condor credit spread newsletter late last year, and that made me recall learning about those strategies over a decade ago.

They say something like 90% of options expire worthless, so why not be the one that sells/writes the options and keeps the premium with a 90% win rate?  But here's the catch -- if you write options, the only thing to be worried about is the 10% of the time when the trade goes against you, and your losses are theoretically limitless.

I didn't like the thought of unlimited losses.  But I liked the idea of having a steady "income" via writing options spreads such as iron condors, which at least limits the downside risk.  I wanted to move forward with this trading strategy, but didn't want to deal with having to execute and adjust/roll all those iron condor legs, which seemed like one big complicated hassle.

After deciding to move forward with autotrading, here are the steps I took:
  1. Subscribed to a credit spread/iron condor newsletter service
  2. Opened an account with Global-Autotrading.com
  3. Opened a brokerage account with Interactive Brokers 
  4. Requested Global to link the newsletter service and  brokerage
  5. Set the allocation per trade (i.e. % of portfolio or $ amount) for each trade
A big point of consideration are the overall costs.  Depending on your portfolio size, costs can be high as a % of assets and/or profits.  Here's a general ballpark cost structure for stock and options trading.
  • Newsletters range from $30-$150+/month
  • Global-Autotrading charges based on number of newsletters subscribed:
    • 1st newsletter = $70/month
    • 2nd newsletter = $30/month
    • 3+ newsletter = $10/month for each additional
  • Interactive Brokers doesn't charge any fees for autotrading.  But what's interesting is that because all the accounts managed by Global are aggregated under one adviser umbrella, you benefit from reduced commissions as volume tiers are exceeded within the calendar month.
  • Dittotrade doesn't have a monthly fee, but each of their newsletters/alert services have varying monthly fees.  And their commissions are middle/high end of the road, about $6/trade (and additional $.75/contract for options).
  • There are some options brokers which work directly with some credit spread newsletters and either don't charge any autotrade fees (tradingblock.com), or minimal $2/trade (eoptions.com). 
    • In those cases, you can avoid the global-autotrading service and monthly charges.  Their commissions can also be as low as $0.75/trade, with no ticket charges.  However, your fills may or may not be as reliable as using the Global-autotrading and IB combo, although it's hearsay and I have no firsthand evidence.
So depending on your portfolio size and/or returns, costs as a % profits can vary widely on a net return basis. For example:
  • Using the higher range ballpark cost figures above on a $5k portfolio, you would need to make a 40+% net profit in a year, just to break even on your autotrading related costs! 
  • Compare that to a $50k account, which would require a 4% net profit annually to break even.  Big difference.
Surprise!  Most autotrade programs I've tried just haven't delivered.  Maybe it was bad luck with the selection process, or maybe that's just the way it is with most autotrading services  Keep in mind my sample size of autotrading services is very small.  But the bottom line is I've lost several thousand $'s on "autotrading research." 

Yes, there has been one autotrading newsletter that ended up meeting/beating expectations, so I am considering scaling up my investment in that program.  I've posted a review of the performance to date on a separate blog post here.  

It has only been less than a year since I began this journey into autotrading services, so I'm still tracking the newsletters I'm subscribed to as well as continually evaluating other potential ones. 

I'm finding that this is not a process that can be accelerated very quickly, except perhaps from others who subscribed to other newsletters and are willing to share their real time results or experiences.

So if you're someone who is interesting in sharing autotrading newsletter results, it would be great hearing from you.  Like any other endeavor, there are some good opportunities out there, but only after working hard (or luck) at uncovering those few autotrading gems.

Moving forward, I will continue to research potential autotrading candidates, invest a small amount in promising candidates as a test, and if results are within an acceptable range, scale up.  Ultimately, I would like to diversify into 3 to 5 autotrading services across various assets classes and trading methodologies.

Stay tuned as this interesting journey continues.


Harry van Beuningen said...

Grove_Under, this is a fascinating topic (and blog). You need to post more - not neccessarily here, but on Twitter.

I am glad to have found your blog

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EA Builder said...

Indeed switching on auto trade services will definitely make you a more independent person when it comes about time. Another advantages can occur, anyway, those like trading unemotionally, trading totally disciplined. Wish you good luck by the way!

Best regards,

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