How the introduction of artificial intelligence trading systems will affect investment management



    Process automation and machine learning are becoming more popular every day. Innovation has also reached the sphere of investment management; automated trading systems with artificial intelligence have appeared in it. This was told by the editors of the MarketMogul publication, and we have prepared an adapted version of the article.

    Market volatility and unpredictability


    With increasing levels of volatility, changes in the stock market are becoming increasingly difficult to predict. In July 2017, the CBOE volatility index fell to a record 9.5 points. At the beginning of 2018, it reached 37 points, and now holds at 19, while stock prices are constantly fluctuating.

    Some analysts explain the situation by a simple market correction , while others see this as a growing influence of the cryptocurrency market on ordinary exchanges. Be that as it may, at the current level of volatility it is almost impossible to think over your actions on the market one step further. But technology can help traders make profits even in such an unstable situation.

    Artificial Intelligence Robo Advisors


    Robo-advisers are becoming increasingly popular with both fund managers and private investors. The main advantage of such robotic financial advisors is the ability to machine learning. In part, their popularity is due to high-frequency trading. Hedge fund managers, in collaboration with programmers, create trading robots that can execute transactions without the participation of traders.

    For example, JPMorgan Chase & Co in 2017 launched a test of a system for the automation of trade based on artificial intelligence. It is called LOXM and operates in Europe, Asia and the USA. The main objective of the system is to complete transactions at maximum speed and at the best price. Systems manage to do this because they learn from billions of test deals. In addition, trade automation allows you to make transactions with large volumes of financial instruments not at a time, but gradually and not cause sharp price fluctuations.

    Such trading systems help traders more accurately predict transactions and not make emotional decisions. However, the development of these technologies is quite complicated and companies that want to automate trade will have to turn to software developers.

    For this reason, private investors and independent financial advisers, such as IFA London, cannot compete with large companies that have Robo Advisors. Also, the high cost and complexity of development slows down the spread of trading systems based on artificial intelligence.

    Another problem of the distribution of robotic advisers and trading systems based on artificial intelligence is low-quality products on the market. Some companies would not mind automating trade, but are afraid to get into a system that does not meet standards.

    The future of AI systems


    However, the technology lives on and develops successfully. So, for example, Babak Hodjat - one of the developers of the voice assistant Siri, intends to conquer Wall Street with the help of completely automated hedge funds. At one of his speeches, he said that he has been developing his artificial intelligence-based system that can process billions of data and predict trends for more than a decade.

    Companies that have automated trading systems set the vector for the development of the entire market. Sooner or later, each investor will work with technologies based on artificial intelligence. In order to accelerate the introduction of such technologies into the market, small companies are likely to pool their resources to compete with large players.

    According to statistics , at the moment, quantum funds are one of the most successful in the market. Little is left before the introduction of artificial intelligence-based trading systems, and then it will be even easier for investors to profit from high-frequency trading.

    Analysts look at the prospects for the application of AI technologies in the field of finance:

    I believe that more and more funds, and even large private investors, will use AI-based strategies. Such strategies continue to show their effectiveness even now, when market competition is becoming very strong. And this forces programmers to work continuously on algorithm improvements. For example, news parsing and automated decision-making based on them seemed like some kind of sky-high technology 10 years ago. Now this is a fairly common practice.

    - German Grigoryan , Head of DMA ITI Capital

    Other materials on the topic of finance and stock market from ITI Capital :



    Also popular now: