Moneycontrol PRO

Why millennials love robo-advisors and algorithmic trades

Millennials are more likely to catch a stock’s sentiment on social media, or via some YouTube influencer

July 07, 2021 / 08:05 AM IST

Driven by quarantine boredom, many in their 20s and 30s have turned to stock markets during the pandemic. For some it is a pastime, while for others, it’s a way to get some adrenaline rush in volatile markets, as well as make extra earnings to follow their dreams.

Millennials have grown up when technology was still developing and adopted it as part of their lives not only in urban parts but also tier 2 / 3 cities and rural areas of the country. Hence, they are more open to technology playing an important part in their financial journey.

More than 90 percent of the retail flow into Indian capital markets comes from mobile applications. Seamless eKYC has enabled them to easily get on board with any Fintech player.

Technology brings ease of investing 

All these digital experiences are putting millennials in charge of their finances early in their lives. They can manage their wealth (mutual funds or exchange-traded funds), take medium to long-term calls (stocks), or trade short term with shares and derivatives. They may not read financial journals, research reports, or company balance sheets, but they are more likely to catch a stock’s sentiment on social media, or via some YouTube influencer.

Close

Discount broking has made it cost-efficient for clients to enter and exit capital markets. The number of new young investors has grown dramatically worldwide, including in India. As a result, discount broking firms have boomed in the pandemic period.

Millennials also take to robo-advisors, for suggestions on portfolio allocation, rather than speak to an advisor. Such robo advisors offer goal-based investing, automatic portfolio resets and alignments based on users’ risk appetites and target returns.

To make life simpler for this new breed of young dynamic tech-driven investors, there are algo platforms that offer simpler retail user experiences. An upcoming retail algo platform Rapid-Trading is such an initiative to watch out for. Rapid-Trading is striving to help the millennials achieve many outcomes.

Automated (alerts based) trade execution of a desired simple trigger (buy stock X whenever its price is close to Rs Y). For example, instead of staring at a screen all day and many days, if a user wants to buy Reliance Industries at a price of Rs. 1800, he can just enter this price trigger in the algo, which will alert the user / execute the trade when the stock price reaches this desired level.

Arbitrage algorithm. A user may want to buy Tata motors shares on NSE, and sell it on BSE, and make any price difference as arbitrage profit. Equally, a user may want to buy Infosys shares and sell Infosys futures, be delta neutral, and make any price arbitrage difference as profit. There are dozens of such arbitrage algorithms available across equities, futures, options and other asset classes.

Execution algorithm allows the users to slice their large orders into smaller child orders to avoid market impact. For example, a user may want to buy 1000 shares of HDFC bank, by slicing it as orders of 10 shares, sent to the market every minute.

Millennials are open to getting algo suggestions from their broker, or even copy high-performing algo portfolios, local compliances permitting in the future.

A word of caution: Millennials and all algo users must understand that:

-Like trading, algo trading is also a risky business. They must understand the downside risks of algos in detail, before using them.

-They should not get manipulated into blindly believing in any algos / algo providers that offer guaranteed returns. There are always risks involved and one must understand them before deploying their capital on them.

- Algos are technology-driven, which may go wrong in the future based on some extreme scenarios; so, users must keep risk aspects in mind, and apply risk management on their deployed capital / margins, so they don’t lose any more than what they could afford to.
Kunal Nandwani is Co-Founder and CEO of uTrade Solutions
first published: Jul 7, 2021 08:05 am
Sections
ISO 27001 - BSI Assurance Mark