June 17, 2024
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A stock trading bot is a computer program that automates buying and selling of stocks. Bots are legal in Hong Kong, but there are restrictions on how you can use them.

What are the restrictions around using stock trading bots in Hong Kong?

SFC must licence you

You must have a licence from the Securities and Futures Commission (SFC) to use a stock trading bot in Hong Kong because bots are considered ‘automated trading services’.

If you don’t have a licence, you can still use a bot, but you need to get permission from the SFC first. It would be best to tell the SFC what your trading strategy is, how the bot will trade and how you will manage risk.

An approved person must supervise you

If you’re using a stock trading bot, you must be supervised by an ‘approved person’. The SFC licenses an approved person to give financial advice.

Approved persons include:

  • licensed investment advisers
  • licensed brokers
  • licensed money managers

You must disclose your use of a stock trading bot

You must disclose to your broker or another intermediary that you are using a stock trading bot, so they can make sure that your trades are being executed according to their rules.

If you don’t disclose that you’re using a bot, your broker or intermediary may refuse to execute your trades.

Your bot must follow the rules

Your stock trading bot must follow the same rules as humans when buying and selling stocks. For example, your bot must:

  • only trade on approved exchanges
  • abide by insider trading rules
  • not manipulate the market

If your bot doesn’t follow the rules, you could be fined or banned from using a stock trading bot in Hong Kong.

You may not use your bot to insider trade

You cannot use your stock trading bot to engage in insider trading., which is when you buy or sell stocks based on information that is not publicly available.

If you’re caught in insider trading, you could be fined or banned as well.

Benefits of a stock trading bot

Increased accuracy

Bots can place trades faster and more accurately than humans because they can quickly process large amounts of data and make decisions based on pre-determined rules.

Improved consistency

Bots can help improve the consistency of your trading because they will strictly follow your rules without emotional interference.

Reduced costs

Bots can save you money by helping you to avoid making mistakes. They can also help you save on commissions and fees by executing trades quickly and efficiently.

Increased flexibility

Bots can trade for you 24 hours a day, even when asleep, meaning you don’t have to miss out on any opportunities.

Access to more information

Bots may also be able to give you access to more information than you could ever process yourself because they can monitor multiple markets and news sources simultaneously and at a much quicker rate.

Risks of using a stock trading bot

System failures

Stock trading bots rely on computers and software to function, meaning they are susceptible to system failures, such as power outages, Internet disruptions, and software glitches.

Dependence on rules

Stock trading bots can only make decisions based on the rules given, meaning that if the market changes or your rules are incorrect, your bot may make bad or inaccurate decisions.

Lack of flexibility

Stock trading bots cannot adapt to changing market conditions, meaning that if the market moves too quickly, your bot may not be able to keep up.

Limited understanding

Stock trading bots do not have the same level of understanding as humans, meaning that they may miss important information or make mistakes.

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