Artificial intelligence in the stock market
The internet and its technological advancements have significantly altered stock markets, affecting how securities are traded. A study in The Journal of Finance highlighted two main changes:
1. Investors now utilise computer systems to automate their stock trading.
2. Financial markets have shifted so that most trading is conducted through order books.
Today, the majority of financial transactions are electronic, and the time it takes to complete a stock trade has been reduced significantly to mere fractions of a second.
Algorithmic Trading
Algorithmic trading involves buying or selling securities based on specific rules tested on past data. These rules utilize charts, indicators, or stock fundamentals. For instance, if you predict that a stock will drop for three days before rising, you could design an algorithm to buy it when it’s low and sell when it’s high.
Over the last decade, algorithmic trading has experienced significant growth. About 70% of trading in the U.S. stock market is now conducted this way. Forbes predicts that by 2020, the global market for algorithmic trading will grow by 10.3%.
High-Frequency Trading
A popular form of algorithmic trading is high-frequency trading (HFT). Most regulators and investors now utilize HFT and algo-trading. HFT involves buying and selling large volumes of stocks very quickly and is expected to become the dominant form of algorithmic trading in the future.
Artificial Intelligence (AI) in Trading
Algorithmic trading has revolutionised securities trading. Traders use algorithms to trade faster and more efficiently. These algorithms are becoming more complex and can adapt to different trading patterns using AI. As technology advances, algorithmic trading is likely to incorporate more machine learning (ML), which can handle real-time analysis of large data from various sources. trading can be anything like Indian Stock market, US market ,Crypto Market-Bitcoin etc.
Read more about Bitcoin.
Artificial intelligence -Powered ETFs and AI Stock Pickers
Exchange-traded funds (ETFs) have transformed portfolio investment. Many ETFs are index funds, meaning they’re not actively managed. These funds can be managed by computers, making them cheaper to run.
One example of AI in ETFs is AIEQ, an equity exchange-traded fund powered by IBM’s Watson. It consistently outperforms the S&P 500. Another use of AI is in replacing human stock-pickers with AI advisors in actively managed equity funds. BlackRock, a major investment firm, is using AI to manage some of its portfolios.
However, there is concern about AI replacing human advisors and causing job loss. But it’s too early to say as there isn’t enough data on the performance of AI-managed portfolios. The impact of AI trading on market volatility is still being studied.
Also Read Top 20 AI tools that will help us in daily Life.’
Frequently Asked Questions:
What is Stock Market?
The stock market is a marketplace where investors buy and sell shares of publicly traded companies, enabling companies to raise capital and investors to profit from ownership.
What is Algorithmic Trading?
Algorithmic trading involves buying or selling securities based on specific rules tested on past data. These rules utilize charts, indicators, or stock fundamentals.
What are popular Stock Exchange ?
Zerodha Kite, Angel One, Upstox, Paytm Money, Groww etc
What is different between Stock Market and Cryptocurrency ?
The stock market involves trading shares of publicly listed companies, while cryptocurrency involves trading digital assets on decentralized platforms, each with distinct regulations, volatility, and underlying assets.
