Today, a new era begins within the social trading sector of the retail FX industry as the original model of…
Today, a new era begins within the social trading sector of the retail FX industry as the original model of providing an emulation of a social media platform in which traders could follow the strategies and signals of what have been referred to for some time as ‘lead traders’ has now been superseded by the next generation.
Today in Rehovot, Israel, Lior Nabat, CEO of Tradency, inventor of the Mirror Trader concept over 11 years ago, has met with FinanceFeeds CEO Andrew Saks-McLeod for a comprehensive insight into the new RoboX system which is now live and available globally.
Ever enthusiastic Mr. Nabat began by likening the new system to the arrival of a new child, with the first having been Mirror Trader, and the last being RoboX.
“This is not just another product” explained Mr. Nabat.
“In order to take a good look at the evolution and development of the entire solution, we need to go all the way back to 2004 when Tradency was founded.”
“Mirror Trader was invented in 2005, and at that time when I had completed the development of the Mirror Trader, I had a vision of what to do going forward” he continued.
“After a few years, something very important then became very clear indeed, this being that a number of different catgories within the Mirror Trader had materialized.”
Mr. Nabat said “The Mirror Trader platform was initially established to allow retail investors to automatically follow the trading behavior of the experts in the industry. During those inaugural years, we learned a lot about how the user base, which encompassed lead traders, signal providers and followers, behaved and we collected full data which looked at the millions of users.”
This study of data enabled Tradency to see patterns and preferences within users. The compay could see how people behave, how stragegies are doing, and what happened to the market at specific times, and how traders, users and leaders alike, reacted to these parameters.
“We started to see some challenges to the mirror trading model” said Mr. Nabat.
“There were several points that we needed to take into account based on research that we conducted via historic data. Just over a year ago, decided to take a look at what we have worked on so far, and try to find out what else we could do bearing in mind the usefulness of all of this information” – Lior Nabat, CEO, Tradency.
Mr. Nabat then described how some critical findings were discussed internally.
Lior Nabat dispells widely held belief about trading strategies
“The first thing that I would like to do, which is quite controversial, is to dispell some widely held beliefs that exist within this particular sector. First of all there is no winning strategy, never ever, at any time. This absolutely does not exist” he said. “We have always encouraged system trading users to pick several strategies and refresh with new strategies on a regular basis. Unfortunately most users tend to “fall in love” with their chosen strategies and fail to drop them and pick up new ones more fitting to current market conditions.”
“We have on our record more than a million strategies that have been registered between 2005 and now. We also checked how many signals and trading ideas have been put on the system since 2008, and this amounts to some 650 million. The amount is quite astonishing. The majority of them do not run for more than a few months, and absolutely none run for the long term” – Lior Nabat, CEO, Tradency.
There is no trading strategy that works all the time, any time
Via the collection of this amount of ‘big data’, Mr. Nabat has been able to establish that most trading strategies have peaks and troughs, at that point drawing a diagram in order to depict this in detail.
“What is the problem?” he asked. “I have deduced that most of the time it is very difficult to make sure the signals are followed by a trader when the trader is in the right place. The problem is that most of the users do not know when to enter and when to exit trades when following strategies.”
“The second problem is that the successful use of the wisdom of the crowds for other businesses cannot be translated into the online trading industry. In this business, timing is critical. It is quite impossible, for example, that a very high quality restaurant would offer the excellent food that it has built its reputation on on Mondays, but then have awful food on Thursdays. Such businesses are consistent, however in this industry, the difference of a few milliseconds can make the difference between a satisfied customer or a loss maker who then leaves and does not trade again.”
“If a taxi driver says now is the time to enter stock market! that’s the time to exit!” – Lior Nabat, CEO, Tradency.
“Timing is a major problem” concurred Mr. Nabat. “My reference to the restaurant industry is valid indeed, because if a restaurant has a good formula, then it is always good, and there are no timing issues, there is no variation in timing. With trading, timing is the key.”
“Getting out early, or out late, for example, you profit more, however with social trading it is not possible to do that.”
Moving onto another problem with the existing model, Mr. Nabat said “The quality of the product is very important. This must be consistant all the time. As I said before, a restaurant cannot be only one day a week, and poor the rest of the time. This is a key consideration within social trading.”
Not enough liquidity
Mr. Nabat then moved on to what he considers to be the largest problem that affects social trading; that being quantity and liquidity. In this case, quantity is referred to as the combination of quality and liquidity.
“The biggest problem is quantity” he said. If there are more followers which are following one expert, the performance starts to deteriorate. This is partly because there is not enough liquidity that will be served at the same price and the same time to all the followers. If the system buys shares, or currency pairs such as EURUSD, with 20,000 people in one go making the same trades at the same times, then the venue or broker has to supply the same asset at the same time to all of the people concerned. This affects the price and can cause adverse effects such as slippage. The account then doesn’t really work, the account eats iself, and people become disappointed” said Mr. Nabat.
“At this point, the critical mass has been reached, and there is not enough ‘meat’ to give the same quality that is required.”
Pragmatic view of user education
“I see user education as something of a problem that has had to be overcome” said Mr. Nabat.
“If there is a strategy that is good, the user needs to look at the performance data, and from the broker’s side there is a need to see which users are reading properly and who are not. The parameters that are important include money management technqiue, where the drawdown is, how risk management is performed. For a retail trader or leader to learn this takes a very long time.”
“People who need to learn this they will perhaps take so long that they will never be able to start trading and will not be able to make a viable revenue from it” said Mr. Nabat.
“From the perspective of a brokerage which offers social trading, a broker needs people that understand these parameters because the ongoing challenge faced by brokers is that they need conversions to make money and can only do this and retain them if the customers are able to understand the social trading system properly.”
How to use past performance data to the best advantage: RoboX is born
“Everyone deals with their challenges in a different way” said Mr. Nabat. All the big data that we have collected can be used to disrupt and innovate, and therefore we figured that we could use and adjust the data that we have collected for the advantage of development of the system.”
“We took the data, and it was very interesting what came out of the studies that we made.”
“The new RoboX system differs from anything that has gone before” enthused Mr. Nabat. “Think of its main structure as being a kind of package warehouse which holds a series of rules. Traders can put them in a group, and then can switch between them all the time. The packages consist of a superset of the best strategies that follow pre-define rules. Then, in pre-defined periodic schedules, the package updates the content within it automatically to contain only the most qualify strategies available.”
“This way, clients can receive the best strategies all the time, according to market conditions and their requirements. There is absolutely no need to learn, and no need to think about trading at all. This has been made possible by combining the data, strategies and signals and extracting the best details” he said.
“How does this take the place of good old-fashioned human wisdom?” asked Mr. Nabat, alluding to the principle that the system takes the place of the human interaction that had been needed until now. “RoboX ensures that there is no problem with timing, as the system does everything automatically, and can process evaluation of packages up to 100,000 combinations per hour, choosing up to 100,000 packages per hour per user.”
“We have got so much data, and have employed a technological innovation method which is so advanced that without any problem we can scale all kinds of packages of strategies, rules, signals, and ensure that it continues to choose the right execution at the right time.”
“We can also eliminate the problem with quantity. Today, I have finally understood the packaging that people use. We have therefore created a simple user interface which asks the user three simple questions, those being about risk, what kind of trader they are, and what they want to achieve from their trades over a long or short term. This way, the system can automatically choose packaging that uses our data to fit the profile of each user and spread the loads between all the packages available” said Mr. Nabat.
“If the performance of a selected strategy within a package dips, the system will choose a different strategy within a package instead. From the brokers’ perspective, absolutely no action whatsoever is required. The broker doesn’t need to do anything, other than just to connect traffic to RoboX and away you go.”
Mr. Nabat likened it to a very sophisticated Artificial Intelligence system.
“I am very proud of it indeed” he said. “I could see a problem so I fixed it. I am an engineer. Engineers always find a problem and then design a solution for it, not the other way round. We have always had a different approach to solutions and we do this via technology which reflects part of my own innate personality” said Mr. Nabat.
How do I set it up?
Mr. Nabat explained that to start using RoboX, a user needs to just select from three specific scenarios on the main screen, those being 1) Your Starting Balance. 2) Describe your trading method, 3: How would you describe yourself as a trader?
The system is very straight forward. Once these parameters are selected, the system brings out three packages that suit. In this case where we tested it, it recommended packages called Purple Opal 214, Green Emerald 32, Green Topaz 111.
There is a large risk assessment indicator which resembles the tachograph or speedometer on the dash console of a car.
The system then automatically puts the packages that fit the trading strategy on the screen and begins to work. Mr. Nabat demonstrated how the package distribution is displayed in percentage terms on a pie chart.
In terms of ergonomics, RoboX has a very simple screen which shows balance, floating P&L and trading mode, along with current monthly P&L, and users can do a monthly, daily and weekly recap, as well as a display which tells you how much you need to invest to trade specific packages according to risk and package.
Tradency offers a proprietary smartphone application which can be downloaded, in the quest for remaining in the mobile-led methodology of today.
Mr. Nabat concluded by explaining “We have managed to redesign this entire concept with a system that continually selects packages that keep the trader in the part where signal providers and lead traders are at their peak and have the most followers due to successful trading.”
“At the point where it starts to dip, the package automatically sets new strategies to put in the package to keep them in the strategies which are good and have not lost their following. QED!”
All photographs copyright FinanceFeeds#robox, #social platform, #social trading, #tradency