Cryptocurrencies are gaining more and more popularity among investors. The reasons for the widespread appreciation are high manageability, absolute privacy, adequate security, and prompt execution of transactions. These features guarantee good economic benefits, but at the same time require innovative implementations to optimize them. Automated investment platforms are a reliable and efficient solution.
Definition of concepts
Before proceeding to describe the features and benefits of computerizing investment processes, let’s define automated investment platforms and robo-advisors in cryptocurrencies.
Automated investment platforms are a virtual tool designed for efficient and effective investment management.
Robo-advisors are a digital platform based on special algorithms used to automate investment processes in the cryptocurrency sphere.
These two platforms are essentially the same thing. Their implementation in crypto investments is aimed at optimizing and increasing the efficiency of a commercial entity.
A brief historical overview
The history of robo-advisors began in 2008. The first prototype called Betterment was introduced in the United States of America. The digital advisor gained widespread appreciation in 2010. This period of time is characterized by a high growth of innovative technologies. This leap made it possible to automate management processes related to investing. The chronological period of development:
Many investors have come to appreciate the prompt solution of financial problems. Due to the unique ability to quickly offer different options, the number of people willing to use the services of a robo-advisor has increased significantly. The great excitement around the new crypto technology has also raised the demand for a virtual coin exchanger, as the performance of the “assistant” has exceeded all expectations.
How robo-advisors and automated platforms work
Client profile analysis. The use of robo-advisors requires registration on the platform. This action is required to collect personal data and determine the main financial goals. With the help of these steps, the virtual assistant draws up an adapted investment plan.
Compilation of an investment portfolio. This operation means the division of assets into categories. This is done to reduce risks. That is, if one group of assets loses in value, the other will be able to compensate for it.
Computerization of the investment process. After completing the second step, the robo-advisor starts the asset turnover. It sells and buys cryptocurrencies according to the strategy it has developed. From time to time, it rebalances. The assistant analyzes the state of the portfolio, compares the initial state with the current and predicted one. In case of deviations from the assigned route, it returns the entire process to the set parameters.
Optimization for tax requirements (not all investment platforms have this feature). This option does not involve the accrual of tax interest, but the reimbursement of funds spent on their repayment. Assets that are “dead weight” are sold, and the proceeds are distributed between fees and the purchase of similar assets. This way, the balance of the portfolio is maintained.
Continuous monitoring and reporting are at the heart of all automated platforms. Thus, investment management is highly accurate and efficient, enabling exchangers to determine the exchange rate in real time.
Advantages of using robo-advisors
Online platforms have the following advantageous features:
Reasonable cost. The price category is in an affordable range. Even a novice trader can use the services of an adviser.
Low commissions. The small fee is due to the fact that all work is computerized.
Digital advisors are based on algorithms that allow you to perform financial tasks several times faster.
Automatic execution. Robo-advisors perform their functions without prior instructions. For example, tasks such as tax management, portfolio formation, and other related tasks.
A clear interface. The platform is managed on an intuitive level. Thanks to the convenient placement of buttons and filters, the user can quickly customize investments according to their needs.
Regular automatic diversification. The budget is divided into different categories regularly after a certain period of time. Thus, the virtual assistant reduces the possibility of critical situations.
Absence of an emotional aspect. All decisions of robo-advisors are made without human feelings. They are based only on mathematical logic and data.
Constant updating. Advisors have access to innovative technologies and advanced developments such as artificial intelligence.
Automated investment platforms greatly simplify investment management. Their use can increase the efficiency of transactions by 99%. This figure encourages investors to buy advisor services immediately.
Main platforms and projects
Among the huge number of automated platforms available on the investment market, the following models are considered more common:
Betterment is one of the first robo-advisors capable of performing simple actions such as rebalancing and tax optimization.
Wealthfront – automated management has a similar algorithm of actions as its predecessor.
Schwab Intelligent Portfolios – works with a wide range of assets. It differs from the others in the absence of fees for the services provided.
Ellevest is a digital assistant specially designed for women. They take into account social aspects for financial purposes.
Acorns is aimed at beginner traders. It makes it possible to work with small amounts (up to $1).
Each version of robo-advisors has its own peculiarity, which makes it possible to fulfill the set financial goals, taking into account the investor’s capabilities.
The main risks associated with the use of robo-advisors
Automated platforms for managing investments without human intervention clearly have a huge number of advantages. However, the use of robo-advisors can have the opposite effect. This is due to the fact that such operation is associated with certain risks. Below is a list of the main disadvantages:
Local plasticity. A financial bot performs its actions according to predefined algorithms that are formed on the basis of each investor’s data. The predefined sequence and the use of standard models entail a decrease in customer focus. In other words, such platforms do not take into account the individual needs of clients and cannot offer unique solutions to a particular problem.
Market fluctuations. Economic activity has an unstable schedule. It can reflect both a sharp increase in value and a drop in prices of financial assets. Automated platforms are not adapted to unexpected macroeconomic events. A digital advisor is not able to adapt to such changes, which in turn can lead to financial losses.
Limited functionality. As mentioned above, robot advisors work according to a certain algorithm. In the event of new strategies and unforeseen situations, its functioning may collapse. Namely, the loss of its ability to issue timely advice. The reason for such a reaction is the use of the experience of previous data, which is not always relevant.
Hacker attack. The use of automated platforms involves the transfer of a large amount of user financial data. Unfortunately, this action attracts cyber fraudsters who want to take possession of other people’s funds.
Minimal human intervention. A robo-advisor is, in fact, a machine that is not capable of providing certain support to an investor. This means psychological support and live financial advice.
Technical dependence. Digital assistants can provide their services only when systems such as power supply and virtual network work smoothly. If there are problems with their functioning, errors, failures, etc. occur.
The risk of losses can be minimized by choosing a reliable platform and money exchange service that will allow you to make money transfers and other transactions without any concerns.
Risk management and strategies to minimize losses
Risk management involves the process of making management decisions to minimize unfavorable outcomes. The algorithm of actions in this case includes
allocating the budget to different assets (diversification);
portfolio stabilization by adding stablecoins;
stop-loss;
buying new resources and selling old ones (rebalancing);
gradual investment of funds.
The risk of losses can be minimized by choosing a reliable platform and money exchange service that will allow you to make money transfers and other transactions without any concerns.
Regulatory risks and legal uncertainty
Innovative technologies are moving by leaps and bounds. Due to the high speed of their development, regulatory authorities do not have time to adjust legislation to them. In this regard, there is a certain dissonance, which is expressed in the lack of clear legal standards for digital advisors.
A careful study of the platform in a particular jurisdiction will help to resolve this issue. It is recommended to familiarize yourself with tax obligations, consumer protection, and other technological risks.
Conclusion.
The impact of new technologies on investment management will increase every year. Robo-advisors are replacing conventional approaches with innovative ones, thereby ensuring optimized portfolio management and reducing risks to a minimum.
FAQ
Why do I need an automated investment platform?
Automated online platforms are essential for investors. They perform simpler investment tasks, allowing professionals to focus their attention on more complex processes.
What are the risks of using robo-advisors?
Digital advisors are exposed to the following negative influences:
fraudulent hacking
technical failure;
unable to respond to market fluctuations.
Are robo-assistant services paid for?
Yes. The price of the services is affordable, which makes it possible to use advisors for beginners with a small budget.
