FinTech – Artificial Intelligence in Financial Trading

Impartial, efficient and accurate. . .

Artificial Intelligence seems like the perfect tool for the financial market, using forecasts to make vital trading decisions. Financial success depends heavily on predicting where the market is heading. AI is predictive by nature, and can analyse mass data sets with incredible speed and accuracy, it’s not difficult to see why businesses in the sector have been quick to adopt AI and machine learning.

In the last couple of years, financial trade has seen the rise of administrative AI, from AI customer services and, now, AI-powered hedge funds aiming to provide alternative investment while generating the highest returns regardless of market fluctuations. Even with AI this can still be risky but it’s clear why AI is so valuable when it comes to maximising potential gain, especially when it can gather so much information about the financial climate and simulate risk scenarios. But should we rely on AI to make financial decisions, and how will AI disrupt financial trading?

AI and the financial world
Last year, it was estimated that 75 per cent of global trade is handled by algorithms. This number is only expected to grow as startups and established businesses alike gradually utilise AI as a financial tool. One promising player in AI trade is Sentient Technologies Inc., a machine learning and FinTech company based in Silicon Valley. Sentient Technologies has spent almost 10 years training its AI to make money trading stocks by analysing global data and trends. The company has received $143 million in funding from prominent industry leaders, including the venture capital firm owned by Li Ka-Shing, Hong Kong’s richest man. Aidyia is another company that started a hedge fund based on AI’s probabilistic logic, without any human intervention needed at all. Similarly, AI-enabled hedge fund Numerai believes it can ‘solve the stock market’ via crowdsourced AI alone. As ambitious as these companies may be, cracking the financial market won’t all be plain sailing. For a start, people are likely to be very wary of investing their money in a system that is devoid of all human reasoning. Companies therefore need to find a balance between AI capabilities and human considerations.

How will AI disrupt financial trading?
AI make a real difference in financial trading by mining important data and providing cheap and easily available tools that benefit everyone, not just corporates. The investment decisions made by AI will be calculated, accurate and unbiased unlike those made by humans, who are supposedly too emotional for the stock market. However, machine learning could also present some difficulties. For example, it may create an uneven competitive market between traders that use AI solutions and those that stick to traditional methods. The widespread use of Artificial Intelligence will also call for an overhaul of existing regulations. As the retail trading market expands, there will be more need for algorithmic solutions, which will consequently accelerate the adoption curve. Unfortunately for employees in banking, finance and trade in general, this could mean the elimination of their jobs – or at least a profound change in their role.

AI has an obvious place in financial trading, using Big Data to formulate accurate, unbiased predictions. When it comes to notoriously complicated hedge funds, AI is a blessing. However, machines should never entirely replace human decision-makers, because the choices made by financial companies affect humans themselves. Clients and customers may be reluctant to put their money in the hands of machines – no matter how efficient they are. At the moment, AI and humans are working together to find the best solutions in various different industries. Even so, it’s still important to question whether AI should have so much power, and so much access to our data, when it comes to making financial trading decisions.

Should companies rely on AI to make important trading decisions? Are humans too emotional for the stock market? How else might AI benefit financial trade? Share your thoughts and opinions.