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6 Comments

Starting A Robo-Advisory or Stock Investing Software

I currently have a stock market investing and swing trading membership around this algorithm that I use. It is a long term trend investing approach that I have backtested. It statistically yields an 18% return a year or if you use leveraged ETFs then it yields about 35% a year.

I wanted to create a Robo advisory based around this algorithm because currently most Robo advisors are cool and diversified but do not yield good returns if any. Therefore, I was thinking about creating a Robo advisory that managed people's investments based on this algorithm in ETFs that fit the person's risk tolerance. That is the main target of this app/website but I do have plans for more features like a stock watchlist feature, educational videos about life and finances from a Certified Financial Planner, etc.

Another idea is to have a website/app that allows users to add stocks to their watchlist then get daily texts and emails when it is time to buy or sell a stock in your watchlist based on the algorithm. Therefore, they would be maximizing their return based on a proven approach but I would not have to manage their money which calls for a lot of regulation.

I have an Instagram following of over 40k around investing and I know the majority of people would prefer to have a robot manage everything for them because they are lazy, but I know my target audience of people who care and want to better improve their returns would like the website/app that recommends it to them but they stay in control.

Please share your thoughts! Thank you so much!

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    Have you tried/heard of etoro? That's where you can invest and other people can "follow" your investments automatically, and I think you get a cut of their profits as well.
    To build a robo-advisor (regulation, millions in set up costs etc.) just because you have a trading algorithm you like seems like you're putting the cart before the horse

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      Understandable! Thank you. I will do more market research and testing!

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    Here are a few things you should consider if you go into the robo-advisory field:

    • Regulation: in the US, there is a specific regulation regime to robos, and you have to register as an advisory firm (the full process is about 50-100k USD and few months of work assuming you have at least one sectional finance professional in your team). In the EU, there is a MIFID 2 and the related regulation, and you should register independently form the US registration.
    • Fees: You will compete with near-zero fee alternatives, so the big question is how much AUM do you need to collect to be slightly profitable. Except for hundreds of millions or a billion range.
    • Psychology: returns are nice, but robo is about managing risks. People tend to pull of funds very quickly if they suffer even a short period of drawdowns. Test it in your backtest.
    • Tax: tax-efficient trading provides about the 1/4 of the returns in the long run for the most robo
    • Tech stack: getting the tech right and get certified takes time or money if you want to buy a white label solution
    • Prime brokerage: unless you have a long, good history in the industry, getting a reasonable deal with the leading prime brokerages is no trivial.

    And will all of these we are just scratching the surface. I would suggest starting trading yourself with real money (backtest is nice, but real history is what convince investors), and try to get few early users in separate accounts and trade their money as well (you can do this for example on Interactive broker Family/advisory account up to few people, and legal framework is easier to set up). Collect a 6-12 month trading history and then reconsider the robo path.

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      Thank you! I appreciate that! All good things to consider, I think I may just go the software route instead and create an MVP then test it.

      I currently run a membership around these alerts. It keeps us from significant drawdowns and helps them make consistent reliable profits.

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        Be careful even an MVP/landing page and consult with the capable lawyer what you can promise on that product without being registered.

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          Thank you! Will do! I appreciate your advice because I am unaware of the proper registration needed.

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