WHY IS 80% OF THE STOCK MARKET DRIVING ON CRUISE CONTROL? Perhaps a better question: “What does it mean for your trading strategy?”

 

At Lime, we love the fact that our business is centered on helping our clients optimize their trading strategy to the fullest. We hear stories from traders about how they can rely on our service when they need us, how they can feel comfortable and confident that the platform will deliver superior performance and that our technology offers a second-to-none trading experience. We hold ourselves accountable to these three pillars, with the recent Russell Rebalance serving as a great example on how we deliver.

Yet, we also realize that traders make money based on their own individual insights; they use research that matters to them and then apply what they have learned/forecasted within the technology. After all, an algorithm is only as good as the preparation and code that makes it possible, right?

This is what got us thinking about a recent story we saw on CNBC.com detailing how the current stock market is operating “on autopilot”.

The story noted research and analysis from J.P. Morgan. Passive investments such as index funds and exchange-traded funds control about 60% of the equity assets, while quantitative funds—those which rely on trend-following models instead of fundamental research—now account for 20% of the market. J.P. Morgan’s research put the facts in numbers—passive funds have attracted $39 billion of inflows so far this year, whereas active funds lost $90 billion in 2019.

What does this mean for you as a trader? A lot, and how you respond could determine the fate and future of your trading strategy.

The story points out astutely that much of stock trading is now in the hands of automated buyers and sellers. The market is increasingly sensitive to headlines and more prone to sharp price swings. Algorithmic models may be increasing in popularity on Wall Street, however low-cost passive vehicles are drawing in more and more assets from Main Street—or put more succinctly, traders who might not have positions with big banks or trading firms still have a lot to lose in the whiplash effect of this volatility. Sounds like someone you may know, right?

Lime Brokerage doesn’t want to lose the human element that goes along with trading, for it is the human element that causes us to think about our portfolios differently. Imagine if even more of the market was on cruise control and CNBC or other media outlets wrote that there was no need for a human interaction. How would machines make nuanced decisions? How would they respond to market sensitivities? When things go wrong, do we want to leave our life savings solely to IT professionals and coders?

Of course, we’re not saying that technology should go away. We are saying that there is ample room for artificial intelligence-driven trading to “learn” from people, however old-fashioned that may appear.

We agree with many of our competitors who are concerned with latency, speed, and connectivity. As we work with clients, we hope to demonstrate that our superior performance in these areas allows our customers to worry less about the technical aspects and focus more on the devising winning strategies that keep them with a firm grip on the wheel. And the expertise and unmatched customer service we provide helps our customers, even more, to drive custom strategies and algorithms and achieve their trading goals.

So put the pedal to the metal, keep your hands at 10 and 2, and don’t always go on cruise control, for you may not recognize the beauty of the open road—and the returns that could be out there for you!

 

Lime Brokerage LLC is not affiliated with these service providers. Data, information, and material (“content”) is provided for informational and educational purposes only. This content neither is, nor should be construed as an offer, solicitation, or recommendation to buy or sell any securities. Any investment decisions made by the user through the use of such content is solely based on the users independent analysis taking into consideration your financial circumstances, investment objectives, and risk tolerance. Lime Brokerage LLC does not endorse, offer or recommend any of the services provided by any of the above service providers and any service used to execute any trading strategies are solely based on the independent analysis of the user.

 

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