How AI Transforms Trading: Current Trends and Perspectives

In 2023, we observed a boom of news about Artificial Intelligence (AI) in every field, whether finance, tech or medicine. In 2024 and later, AI will take an even more significant place.

The AI market is anticipated to achieve a market size of $305.90 billion this year and double to $738.80 billion by 2030. 

I would like to explore in more detail how AI is transforming trading and finance. AI has already established a significant presence within the trading landscape. Algo-trading is expected to reach $23.74 billion in five years. Moreover, according to the survey, almost 33% of investors and traders would be glad to let a trading bot make all the decisions for them. 

Is it fiction or a real opportunity? Let’s have a look at the technologies that are changing the industry today. 

Various methods exist in trading, all aimed at the common goal of buying low and selling high. It becomes possible due to approaches, with the use of AI technologies that have already proved their worth in trading. These include statistical methods, fundamental and algorithmic approaches, where traders seek to automate their strategies. 

AI ushers in a new era of trading, transforming investors’ methods and ways to make decisions by integrating algorithms, predictive analytics, and machine learning. AI has long been present in portfolio management and has been utilized through various optimization and selection methods. These include applications in high-frequency trading (HFT), predicting market microstructure, using evolutionary models to generate automatic strategies, and implementing different levels of portfolio automation.

AI is also essential in algorithmic trading. Employing computer algorithms according to predetermined rules can assist traders in executing more precise and timely transactions, thereby mitigating the risk of human error. This ensures traders stay competitive against others who do not utilize and implement AI. It is this kind of AI that is highly useful and actively implemented by traders right now. However, today, it cannot completely replace a competent trader.

It is especially worth focusing on large language models (LLM), which are a part of generative artificial intelligence. The most striking example of LLM is the ChatGPT, the practical interest in which has increased many times in recent years.

In spite of this hype around LLM, they will not fundamentally alter the overall picture in trading, as AI is not limited by them and is now being successfully applied in formal models. 

However, LLM can enhance trading practices. Within the realm of LLM, AI has the potential to streamline analytical departments in companies that rely on human analysts. It can function as a quicker and more accurate alternative to human analysts, efficiently gathering various types of information.

Furthermore, AI, under the facet of LLM, has great potential. The next generation of Generative AI stands as a top-5 trend this year. So, 2024 sounds really promising in terms of new ways of artificial intelligence implementation, especially for companies looking to implement GPT or other closed-source large language models.

Throughout history, humanity has dreamt about commanding actions as effortlessly as commanding a genie out of a bottle. This aspiration has found a solution in AI. However, its intellectual capacity of AI remains limited; while it can recall information and draw conclusions, it still needs to assume the creative and decision-making roles crucial in trading. Thus, in the future, the primary ambitions will revolve around developing generative AI capable of surpassing these limitations.

Alexey Afanassievskiy, Executive Director & Head of Portfolio Management at Mind Money

In my opinion, the transition to a strong AI is not going to happen in the next couple of years. Nevertheless, we will witness significant shifts in the level of investments in companies utilizing AI in their operations. This shift will be much more important for investing and trading than the development of AI itself. 

As I have mentioned before, the current AI technologies are not able to completely replace a person. Nevertheless, traders already have the opportunity to improve their skills and learn how to integrate emerging technologies into their work. Despite all the shortcomings that have yet to be overcome, AI can displace people who do not use it from the market. Only using AI technologies wisely and in conjunction with solid skills can enhance trading outcomes.

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