7 questions to ask before you trust an algorithm with your money
If you are weighing a systematic strategy, these are the questions that separate a real one from a good-looking pitch.
From the outside, a real systematic strategy and a backtest in a nice deck look exactly the same. Both show you a chart that goes up and to the right. Both talk about taking the emotion out of investing and making money whether stocks rise or fall. You usually find out which one you handed your money to only after it is too late to matter. The good news: you do not need to be a quant to tell them apart beforehand. You need seven questions — and you need to watch who answers them straight and who starts hedging. The order matters, too. The first few are obvious. The one most people never think to ask comes later.
One thread runs through all seven: a real strategy is defined less by what it promises than by what it is willing to show you and admit. Keep score of how straight each answer is.
Can they show a real, multi-year track record — including the drawdowns?
Anyone can show a chart that goes up. The tell is whether they show you the bad stretches too: the worst peak-to-trough loss, the losing months, the years they would rather skip. A strategy that only shows its wins is showing you a marketing asset, not a track record. Ask for live results across at least a few different market years, and ask specifically for the maximum drawdown. If they hesitate on that one number, you have your answer.
Does it only make money when the market goes up?
Most strategies sold as "diversification" are really just the stock market with extra steps. They feel different until the market falls, and then they fall with it. The question to ask is direct: can this strategy take short positions, and does it trade more than one market? Vector Capital, for example, goes both long and short across stocks and futures, so a rising market is not a requirement for it to work. The place to check that is not the brochure — it is the worst market year on record. 2022 gutted the average stock-and-bond portfolio; a strategy that genuinely doesn't need markets to rise should be able to point to that exact year and show a result that didn't fall with everyone else (the numbers are a few paragraphs down).
What actually happens in a year like 2022, or in a crash?
2022 is the honest stress test. Stocks and bonds fell together, and the "balanced" portfolio that was supposed to protect people did not. So ask the uncomfortable version: show me your worst year. A strategy designed to be market-neutral should be able to point to a down year for the market and a result that does not simply mirror it. Not a promise — a number, from an account that was actually live at the time. Those first three questions are really one question wearing three hats: will they show you the ugly parts? The next questions are different. They are about incentives and risk — the things a chart will never reveal on its own.
Compounded, a $100,000 account would have grown to roughly $568,000 over those four years.
How are they paid — a flat fee, or a cut of your assets?
This is where incentives hide. A manager paid a percentage of your assets is rewarded for gathering money, not necessarily for growing it well. A flat fee is cleaner: the cost does not balloon as your balance does, and the provider only keeps you if the service is worth paying for. Vector Capital charges a flat fee rather than skimming a percentage of your account, which means the math stays in your favor as the account grows.
Do they have skin in the game if it does not perform?
A confident pitch costs nothing. A guarantee costs the provider something. So ask what happens if the strategy disappoints you — is there any recourse, or is the risk entirely yours? Most will offer none. The ones willing to stand behind the work with a real satisfaction guarantee are telling you something about how they expect it to go.
The guarantee almost nothing else in finance will make
Now the part almost no one else in finance will put in writing. Vector backs the system with a 12-month satisfaction guarantee: if you are not satisfied with your first year, you get your money back.
Now think about everything else sold to people building wealth in their 40s and 50s. A bond locks your money up for years and hands you a fixed coupon — no refunds. A whole-life policy can take a decade just to break even, and surrenders at a loss if you leave early. An annuity charges you to get your own money back slowly. None of them — not one — gives you a year to decide whether it actually worked and then returns your money if it didn't. That simply isn't how financial products are built. The house does not hand the chips back.
A guarantee like that only gets offered by someone who has watched the system work across enough conditions — calm markets, crashes, melt-ups — to stand behind it with their own revenue on the line. It takes the risk off your side of the table and puts it on theirs. That is a very different proposition from being shown a number and asked to trust it.
The question almost no one thinks to ask: how much leverage is on your account — and why is the broker offshore?
Start with leverage, because it is what actually blows accounts up. To make small market moves look like big returns, many algorithms — especially in forex — run enormous leverage: 50-to-1, 100-to-1, sometimes more. A US broker would never allow that. Regulators cap retail leverage precisely because, at those multiples, a single bad week margin-calls the account to zero. So to get the leverage, the strategy has to go where those rules do not apply — an offshore brokerage in a jurisdiction with little oversight. The offshore account is not an accident or a detail; it is usually the only place that much leverage is even legal.
That is why the boring answer is the safe one. Your money should sit in an account in your own name at a US-regulated brokerage — where assets carry SIPC protection and swept cash is FDIC-insured, where leverage is capped by law, and where you keep custody and can stop and withdraw within days. The strategy gets permission to trade; it never holds or moves your money. And one honest tell that leverage is under control is the drawdown: a system whose worst four-year drawdown was 16.5% (the figures earlier in this piece) is plainly not what reckless leverage produces — that tends to show up as an account wiped to near-zero, not a 16% dip.
The provider who tells you who this is not for is usually the one worth trusting.
Who is this NOT for? (the question they should answer honestly)
Be wary of any offer that is right for everyone. A systematic strategy like this is built for accounts above a certain size, and it is not the right fit for someone who wants to trade on their own instincts, override the rules during a scary week, or treat it as a quick flip. It is for people who want a disciplined rule set to run without their emotions in the way, and who can leave it alone to do that. If a provider will tell you plainly who should walk away, they are far more likely to be honest about everything else. Which brings the seven questions back to the one thing they were all measuring: not what a strategy promises, but what it is willing to show you and admit. Score your candidates on that, and the good ones separate themselves.
Put Vector Capital through all seven questions.
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