Investing has come a long way over the years.
Consider medieval Rome.
Merchantswould bring spices and grains to the central market to exchange for goods. If they bought the right goods, they might hold on to them for long periods of time in hopes they might appreciate in value. Once they waited long enough, they could buy more goods than they originally had!
Now imagine you are living in 1990's. Merchants instead buy & trade mutual funds on the New York Stock Exchange. They no longer travel to a "central market," but, instead, analyze financial products to decide which will appreciate in value and which will lose value over time.
In just a few years, professional and individual investors alike can expect to see changes in the industry as drastic as those seen between medieval Rome and 1990's New York City.
Successful brokers and savvy investors must meet the demands of the modern economy. AI for investing/AI for trading stocksis quickly revolutionizing the financial industry in important ways.
AI in Personal Investment
People are often scared away from participating in the stock market because it can feel like gambling with hard-earned wages. Financial technology experts and strategists are quickly developing new tools with the help of AI to make investing in the stock market and other sectors feel more secure.
AI for investing/AI for trading stocks can help the average individual investor make considerably more over the course of their lifetime.
How AI Can Help
AI robo-investors act on your behalf to choose stocks, bonds, and other financial products. They follow patterns and trends which help them decide when to buy and sell products. All you need to do is provide the funds and watch them grow!
AI investing assistants help you answer crucial questions about the market that might influence choices in buying different investments. In this case, you will have to purchase stocks yourself, but with the advice of a trusted LLM.
ex. TendiAi
Large language models help newcomers research investing more generally. New investors can research the differences between index funds and stocks or other helpful ideas to help them make more educated decisions.
ex. Chat GPT
Tax-loss harvesters look at user income and current investments to help make recommendations about how to minimize the amount of taxes paid on capital by putting money into investments that gain value.
ex. Integrated into Wealthfront's Advisor
Quiz
Diego wants to see his wealth grow, but doesn't trust traditional brokers. He thinks computers might be more trustworthy with his money. Which AI assistant(s) should he consult first?
AI in Stock Trading
AI's powerful ability to notice patterns can be useful in both the professional investment sector and personal finance. For example, robo-investing technology and financial advisers exist for both individuals and large-scale investment firms.
However, Wall Street remains on the cutting edge of investment technology and, due to the size of firms, has developed some targeted uses.
Professional Stock Trading Challenges
Speed: Wall Street trades happen in a fraction of a second. Humans simply can't keep up with and make informed decisions about trades within these time constraints.
Complicated administration: Banks and investment firms are generally large organizations with complicated structures and bureaucracy.
Amplified risk: Because they're larger and trade with larger sums of money that often belong to clients, their risks are much greater.
Legal questions: Investment firms have to ensure that their trades abide by often complicated rules and regulations.
How AI Can Help
High-frequency trading applications help Wall Street Investors place extremely fast but well-informed trades and transactions. These applications weigh both potential gains as well as risks with great speed before executing transactions.
ex. Most of these are internally developed and proprietary. Public options such as X_TRADER exist, though.
AI productivity tools allow businesses to simplify complex tasks and completely remove the need for repetitive and pattern-driven tasks such as data analysis or scheduling. While these tools are available across many sectors, Wall Street and investment firms are certainly accelerating the technology's use.
AI fraud detection systems have become extremely important to the financial sector in recent years. Since fraudsters can use AI to concoct fraudulent financial scams, financial professionals can also use the technology to identify and prevent them. This helps maintain trust between the customer, legal system, and financial institution.
AI in Cryptocurrency
Similar to its uses in personal finance and professional investing, AI for investing/AI for trading stocks capabilities are rapidly assisting professionals in the cryptocurrency industry.
Cryptocurrency struggles with many of the same challenges as the previously mentioned examples. For example, fraud, risk, speed, and data analysis are all important to crypto-traders. However, cryptocurrencies also present unique challenges that AI is well-positioned to solve.
Cryptocurrency Trading Challenges
Blockchain requires a lot of computing power and energy. Therefore, efficiency is incredibly important to the industry.
Generating new coins requires a great deal of nuance and knowledge, but the industry prides itself as a democratizing force.
Photo by Kanchanara on UnsplashPractical Solutions
Efficiency optimization programs: According to Forbes, "AI can address this by analyzing and predicting network demand, dynamically adjusting energy consumption to reduce waste and optimize performance.
Moreover, AI can facilitate "sharding," a technique that divides blockchain data across multiple nodes, allowing parallel processing and faster transaction times. Combining AI’s adaptability with blockchain’s integrity can effectively scale blockchain networks, a critical step for broader industry adoption."
AI-generated cryptocurrency: Crypto-traders can also use AI to generate new tokens and NFTs by entering simple prompts. AI allows for the self-governance and decentralization sought by the industry.
ex. Dawgz AI
Quiz
How might AI negatively impact the stock trading industry? Select all that apply:
Take Action
While AI for investing/AI for trading stocks can certainly help alleviate some of the challenges presented by the modern financial industry, it's important to note that no technology is perfect and will, inevitably, present its own challenges. For example, because of its concentration on patterns, AI struggles when the market takes unexpected turns.
The stock market is, after all, notoriously unpredictable. Please remember that this Byte, while thorough, shouldn't be considered investment advice and can't replace comprehensive personal research.
Make sure to educate yourself on this subject further before making any decisions to use this technology in your financial portfolio.
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