AI in Trading Technology & Stock Market Investing

  • AS Team
  • Oct 27, 2021
AI in Trading Technology & Stock Market Investing title banner

Does this sound like you? Then you're a stock market investor. You want to grow your wealth, but you're worried about the highs and lows of the market. You're tired of watching your money disappear when the market is down, and you don't know how to react when it's up. 


Many people who invest in the stock market are looking for ways to make their lives easier. The vastness of the market can be intimidating, and many investors want to trade stocks without having to constantly monitor the markets themselves. 


They hear about how artificial intelligence technology is helping people do everything from driving cars safely to recommending movies on Netflix. And that’s the simple truth of it all, AI is increasingly becoming a part of our lives. 


Read AI in our daily lives


Algorithms run night and day to provide us with news feeds suited to our tastes, going so far as to determine what kind of person could become a significant other when we swipe left or right. 


When stock trading initially came on to the scene, it was a scene composed of traders and brokers conducting transactions on active trading floors, doing so with nothing but their brains. By relying on the pattern-spotting nature of the brain  as well as sequential reasoning, traders conducted all their business verbally in the trading pit. However, the times are changing, and with it, the services of human floor traders too. As trading continues to gain a stronger foothold in cyberspace, it’s become quite apparent that the services of a traditional floor trader are becoming redundant while empowering individuals who typically wouldn’t be able to gain access to the markets. 


Duplicating the actions of the human brain


In the complex world of trading, human traders would traditionally track stock prices, then try to recall them, and finally create memories to formulate a pattern. AI has the capacity to perform the same task with a lot more efficiency while also including a lot more data points, thus duplicating a key part of the brain that usually gets utilised when trading. 


Algorithmic trading, which goes by a number of names, including HFT (high frequency trading), automated trading, algo trading and robot trading, is the most commonly used form of AI in the financial industry. 


Algorithmic trading relies on advanced mathematical and complex models in order to execute trades on behalf of human traders. These AI robots are usually coded in programming languages such as Python or Java by broker firms or by well-informed individuals. 


The models that are instilled into the software are built around specific rules designed to determine and implement the most optimal trade while incurring the least repercussions. 


Essentially, AI trading technology works by crunching through loads of data in search of correlations in order to teach itself how to predict future outcomes. This rinse and repeat process is commonly referred to as machine learning. 


More traders and investors are turning to AI-driven platforms in the hopes of stable returns while also praising other attributes such as accessibility, simplicity and cost-saving benefits. AI trading technology doesn’t guarantee returns and quite often the onus is still on you as the trader or investor to constantly keep abreast of the financial happenings of the market. If anything, one should think of AI technology as a tool in the trader’s arsenal. 


Most common forms of implementation


  1. Uncovering patterns


Automated trading software varies in strength and application; it all depends on whether an individual trader is making use of it or an investment firm. In the case of the latter, and because more advanced and expensive software can be ascertained, powerful computers are able to practically crunch through endless data points in mere minutes. 


Historical and duplicating patterns that a human being would rarely spot can be picked up on. The human brain is simply no match for the amount of processing that AI technology is capable of. 


For instance, a trading robot can assess thousands of stocks in moments. Some hedge funds have been known to fully capitalise on AI’s machine learning ability to analyse up to 300 million data points on the NYSE in the first hour of daily trading. It also means that investors can partake in trading on FTSE 100 and SP500 market indexes, which are essentially UK and US investment portfolios. AI-driven software can allow for an in-depth analysis of both markets at the same time.


  1. Predictive trades based on opinions


The abilities of AI trading technologies aren’t limited to number crunching; in fact, automated bots are capable of scrolling through all forms of media such as blogs, news headlines and social media comments in order to ascertain what direction a stock will go as well as what other traders might do.


  1. Faster trading


Faster trading means more trading. Automated trading software, due to its capacity to crunch and analyse in the thousands and in other cases, millions, means that every second can count. It also means that you don’t need to get in touch with an investor or your broker – which will incur extra costs. 


Is it a final solution?


Quite simply put, no, automated trading is not a final solution. It does however keep on improving, so stagnation is out of the question, and this is because AI continues to learn from its mistakes. 

Through the regular deployment of trading assistants, these programs are able to refine their techniques and absorb big data technologies of new data. AI’s ability to lead users to better returns can however be sidelined by certain caveats. 


For one thing, automated software relies on data and the interpretation thereof. If the quality of data is questionable, then so too will be the quality of the outcomes.  Then of course there’s the fact that the software still relies on the strategy that you as a trader intend to employ. In addition, there might be an extra cost incurred in the form of a fee for being allowed to use the automated software.

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