Robo order is a multi-leg order that is used for day trading and allows a trader to place more than two orders along with the initial order. It can be used for both buy and sell orders. Let us see in detail about Robo order, how it works, and how to execute.
Whenever people talk about robots, images of Iron Man and all the superficial characters come to our mind, which with their high-functioning intelligence, have stunned the real world.
But what is Robo advisory in the financial world?
To put it very simply, Robo Advisory Engine is a piece of modern technology that is more intelligent than a human and has a predictive nature, thereby helping investors make correct decisions while participating in the capital market.
The system is built with the cognitive ability to go through millions of data points from history and develop the best strategy. These engines have seen tremendous acceptance in the western world, but it has just started to gain traction in India.
What is a Robo order?
The term “Robo order” or “Robo trading” sounds a lot like “Robo advice” (the online investment management). Like Robo advice, Robo trading/Robo order uses technology to provide information that can be used to trade in the capital market. More specifically, a Robo order is a type that can be used to book profits at different price targets and minimize loss simultaneously with a trigger price. Robo orders are used for both buying and selling of stocks.
Let us see the two cases of Robo order –
- Case A: If the initial order is a Buy order, the target and stop loss will be Sell orders.
- Case B: If the initial order is a Sell order, the other two will be Buy orders.
Let us now take an example of Robo order –
For example, you want to buy shares of Reliance Industries Limited at Rs 2350 and book profits at Rs 2450. However, you also fear that the price may go down on the flip side, and you want to cut your losses at Rs 2300. So, to execute this type of order, you will use a Robo order with the following sub-orders –
– Initial Buy order – The limit price of Rs 2350
– A sell order at the target price of Rs 2450
– A stop-loss order with a trigger price of Rs 2300
When the limit order is filled, and any two orders are executed, the remaining orders are automatically cancelled.
Let us now see the case of Reliance on the same day. Let’s assume Reliance opened at Rs 2340 and closed at Rs 2290 after making an intraday high of Rs 2500. In this case, the limit order is executed at Rs 2350, and the trader gets the shares. When the share price moves in his favour and hits an intraday high of Rs 2500, his sell order at Rs 2450 will be executed.
Now, when the price tends to go down and hits the closing price of Rs 2290, the stop loss doesn’t get executed as the two of the three orders are executed, and the stop loss gets cancelled.
Trail stop loss facility
In Robo order, there is an option that allows you to put a dynamic stop loss. In this feature, suppose the investor puts a trailing stop-loss order of Re 1. Thus, whenever the price of Reliance Industries Limited goes up by Re 1, the stop loss also goes up by Re 1. However, there is no change in the stop loss in this feature if the stock price is going down.
Does Robo advisory / Robo trading help investors?
When you want to succeed in the capital market, you will have to work hard in research. The research helps you understand the market and different strategies that can be implemented. For this, you will have to go through enormous amounts of data and interpret the bigger scheme to develop the winning strategy.
Also, since the market is volatile, you must deduce whether a stock is worth investment. Additionally, it would help if you were practical rather than emotional with your investments. Thus, you will have to exhibit a certain amount of discipline to succeed, and it is challenging for any human to process so much and act accordingly. This is where Robo advisory/Robo trading comes into the picture.
Robo advisory / Robo trading against humans
Robo advisory/Robo trading/Robo orders are considered best in the market. Following are the reasons for it –
- Computes a high amount of data to come up with the best possible investment strategy keeping the risk appetite of a retail investor in mind
- Involves no factor of emotions or biases.
- Very disciplined by default and suggest logical strategies.
- Helps build a diversified portfolio as per your needs.
- Suggests stocks and mutual funds based on past, present and likely future trends.
To conclude, Robo advisory is an upcoming trend in the Indian capital market. Robo order (a tool in the broader Robo space) has been gaining traction considering its optimized strategy that allows you to minimize losses and maximize profits simultaneously. Robo order, as mentioned, is a multiple leg order and helps you combine your limit price, stop loss, and the selling price as applicable in the buy and the sell transaction. Thus, Robo orders can be used powerfully to benefit an investor/trader.