According to one stock market craftsman: AI for traders is like fire for cavemen! What this means is that artificial intelligence will soon transform financial markets. Although humans are still the largest traders in the financial markets, artificial intelligence is also emerging and playing a key role. According to the latest research conducted by a research company in the UK, electronic transactions account for 45% of the profits from cash assets. Although hedge funds are less inclined to automate, many use AI-based analytics to shape their investment ideas and portfolio. In the following, we will deal with the basics of financial markets and then the role of artificial intelligence in predicting them.
What is the stock market?
The stock market is where you buy, sell and trade corporate stocks on any business day. This market includes companies in all industries where buyers and sellers set prices and trade with each other. Investors buy and sell these shares among themselves, and listed companies, such as the New York Stock Exchange, have the task of tracking and regulating the supply and demand of all these shares. Shares represent the ownership of a company, which is dividable into small units. By dividing stocks into smaller units, people can get a percentage of those stocks.
The most important methods of financial market analysis
Financial market analysis is divided into two parts: technical analysis and fundamental analysis. Technical analysis examines the price records of charts. Technologists believe that everything is included in the price because the appearance is a graph of the millions of transactions and events that have taken place in the company. Graph patterns and analytical tools such as indicators, the profit and loss limit, and technical traders’ entry points are determined. It examines most of the advances made in stock exchange artificial intelligence in the technical dimension. Because extracting data and finding trading patterns and strategies on the price is much easier than extracting and analyzing fundamental economic issues.
Fundamental analysis studies companies’ economic aspects, including the breakdown of the company’s financial statements, economic news, important economic indicators, the company’s calculated profit and loss, and many more. Analysis of economic and political news, like the tweets of high-level politicians, is also a fundamental analysis. We have seen a lot that the US stock index will be negative or positive for a few days with a Trump tweet. With the development of artificial intelligence and natural language processing, artificial intelligence in fundamental analysis has recently been open. However, the introduction of artificial intelligence in this area still needs improvement and progress to extract, analyze and trade data from all economic sources, financial statements, economic news, and other financial sources.
Investing in financial markets
After learning about stock market movements, most people believe that investing is the same as trading; in both categories, we are looking to make a profit. However, the type of profitability of these two methods is completely different. All this difference can be sum up in that investing is a long-term process, but trading is short-term profitability. Investing is a tool for building wealth in the long run. When one invests in a company, one expects the company’s stock to grow over years or even decades. It takes a lot of patience and mental discipline to endure the good and the bad of the market. Investing can give you a huge amount of wealth for your retirement. Capital is much more than the interest on your bank deposit or personal savings.
Artificial intelligence and automated trading systems are more helpful today because technical analysis is very important in trading. Recently, however, artificial intelligence systems have also been useable in investment. These systems select the best from thousands of companies by exploring the basic information and data available. These algorithms are also useable in the portfolio management process for optimal investment.
It may be tedious to hear about the investment process. You probably do not want to get rich in the next 30 years; You want the result right now. Do not worry because we will introduce you to trading in this case.
Trading in financial markets
Stock market trading is useable to make money in the short term. And traders enter and exit a trade in short periods of weeks, days, minutes, and sometimes seconds, earning a reasonable profit. Imagine being able to make $ 400 in 30 seconds, which is great!
You hear this phrase from many traders. You might say to yourself, what a wonderful way to screw people over $ 400 in 30 seconds. We can say that starting in this profession requires stock analysis, sufficient experience, planning, and capital. Traders are dividable into different groups depending on the periods in which they operate in the market. Scalpers trade in minutes or even seconds, traders only trade during the day and leave before the end of the day’s trading hours, and another group keeps trading open for a few days.
Financial markets also have different categories that are selected depending on individuals’ type of trading and risk-taking. Some markets are one-sided, and you only profit with price growth, and some markets are two-way, which means that the lower the price, the higher you can benefit.
In addition to trading stocks, traders can also buy and sell price indices, various commodities, and currency pairs (in the Forex market). One of the advantages of trading is the possibility of leverage by brokerages in some transactions. While increasing the risk of trading, the leverage ratio brings maximum benefits to professional analysts.
Very diverse and advanced systems have come to aid intelligent and automated technical analysis and trading. These algorithms and systems deliver a trading robot to you by analyzing prices and using analytical tools such as indicators, moving averages, trading volume, price patterns, etc. These robots must be able to form a trading system, apply capital management and report the results. These services are also useable in banking, finance, and business intelligence.
How does AI predict the stock market?
There are several ways artificial intelligence can help predict financial markets, some of which we will discuss below.
1 Discover patterns
High-powered computers can analyze countless data in minutes; Thus, they can identify historical and repetitive patterns. Identifying these patterns leads to smart trading, which is often hidden from investors’ eyes. Humans cannot analyze all of this data and identify these patterns at the same speed. Imagine that AI can scan thousands of companies in a matter of minutes. CNN reports that when it comes to bulk data trading, some fundraisers use artificial intelligence to decrypt 300 million price data on the New York Stock Exchange in the wee hours of the day. Other AI services in stock markets also recognize market trends and improve the user experience for traders.
Two transactions based on economic news
By analyzing news headlines, comments on social networks and blogs, and artificial intelligence. Can predict the movement of stocks. This prediction is made using text analysis and natural language processing algorithms. By teaching thousands of textual data, these algorithms look for similar and regular items that are most accurate.
3 Speed up trading
Although this is not a revolutionary feature, it speeds up trading because it is worth every millisecond today. Artificial intelligence means automating transactions without even contacting your broker to get the software.
How does artificial intelligence protect the US Nasdaq?
For the first time, the US Nasdaq Stock Exchange has used artificial intelligence to identify unusual and criminal transactions in Korea. The initial version was released to strengthen and transform financial market monitoring using artificial intelligence and machine learning. “US capital markets are the largest and most agile financial ecosystem in the world;” Therefore, protecting these markets is crucial for the use of small and large investors. We always need to leverage the latest technologies to monitor stock trading. With the help of artificial intelligence in surveillance systems, we will be able to detect crime more accurately and more broadly monitor the market to improve the accuracy of financial markets.
The latest technologies that help protect machine learning and artificial intelligence include stock learning, deep learning, transfer learning, and human-in-the-loop learning. Deep learning allows computers to learn, both under and without human supervision. This training uses complex patterns, neural networks, and secret communications in large data centers.
Transitional learning creates new models by looking at models formed in the past. On the other hand, human-centered learning allows analysts to share their experiences and expertise with machines effectively. Human-centered learning allows humanities professionals to spend time researching the market and reviewing and verifying evidence. Today, the US Nasdaq stock market monitoring team annually reviews more than 750,000 alerts and detects suspicious items such as abnormal price movements, trading errors, and possible manipulations.
Companies that analyze the stock market with artificial intelligence
Here are some of the most important companies in artificial intelligence and financial markets and see how they use artificial intelligence for the profitability of themselves and their customers.
TRADING TECHNOLOGIES Company in Chicago
Trading Technologies has an artificial intelligence platform that detects complex trading patterns on a large scale in multiple real-time financial markets. By combining machine learning technology with big data processing power, the company provides its customers with ongoing risk assessments of their collaboration.
GREEN KEY TECHNOLOGIES Company in Chicago
The company assists traders using speech recognition and natural language processing (NLP) technologies. These technologies save a lot of time for traders and instead explore companies’ conversations, data, and financial statements. With GreenKey Technologies’ platform, financial professionals can use artificial intelligence to analyze corporate financial statements and identify emerging companies.
KAVOUT Company in Seattle, Washington
The company has a product called “K Score,” a subsidiary of the kai artificial intelligence platform from the same company. K Score can rate corporate stocks by processing large and diverse data sets and implementing various predictive models. Using artificial intelligence, pattern recognition technology, and a price forecasting engine, Kavout identifies the best companies on offer every day.
TRADING Company in London, England
This startup helps make more profit by combining artificial intelligence and the trading community. Trading monitors financial markets to capture optimal trading opportunities.
These transactions are done using blockchain-based smart contracts. All transactions are blockable and cannot be change or manipulation.
SENTIENT INVESTMENT MANAGEMENT Company in San Francisco, California
Sentient helps design strategies using artificial intelligence in both trading and investing. Combining revolutionary technologies and deep learning algorithms, this artificial intelligence system constantly processes and develops new strategies.
INFINITE ALPHA in London, England
Infinite Alpha uses artificial intelligence to facilitate crypto-asset trading. The company also provides security services such as advanced authentication, encryption, security of hardware units, and trading specialists. Users can easily access their account details, balance, and transaction dates using the platform’s dashboard interface.
TECHTRADER Company in San Francisco, California
Techtrader is a fully autonomous stock trading system and does not require any human intervention; this system has been operating for seven years. Without adjusting and updating, this system integrates the human thinking that governs the market with the order and scope of machine influence. According to the company, their job is to hire thousands of traders and focus on just one stock for each of those traders.
TRADE IDEAS in San Diego, California
Trade-Ideas owns a trading robot platform called “Holly” that uses artificial intelligence. The platform examines several investment algorithms and more than one million different trading strategies to increase the likelihood of profitability in the future stages of the company. Only strategies with a success rate of 60 or higher and a profit-to-risk ratio of 2 or higher are recommended to customers.
Some inefficiencies in AI make the stock market risk.
Who is responsible for possible AI mistakes? Artificial intelligence systems, like humans, are beginners and begin to learn, try, and make progress over time. But if the result is a loss in this process, who is responsible? With all the advances that have been made and artificial intelligence services to the financial markets, we have to admit that we are still a long way from eliminating the human map and handing it over to artificial intelligence. A golden triangle in trading includes strategy, capital management, and market psychology. Artificial intelligence has spread to the first two sides, but the psychological side of the market can only be understood by humans, at least until the near future.
There are crises in the world, and these crises, such as the corona and the war and the decisions of politicians, affect the market. Many experts have been able to predict these crises before they occurred, But can artificial intelligence also cope with these crises? On the other hand, short-term trading and job fluctuations are very difficult, and apart from that, transaction fees must be considered.
In transactions, the transaction’s profit is sometimes offset by the fees charged by brokerages and stock exchange organizations if the deal is profitable. Now imagine that you have to pay both the transaction fee and a percentage of the profits to the AI companies. As a result, as the number of trades increases and the time of each trade decreases, the risk of artificial intelligence trading robots increases. Finally, we must keep in mind that trading is always about probability, not certainty; Therefore, we should not expect 100% accuracy and profitability from artificial intelligence systems or professional analysts.