It won’t be wrong to say that Artificial intelligence (or AI) has captured the collective imagination like never before. And the whole foundational concept of AI as well as ML (or Machine Learning) has gone leaps and bounds beyond just being a buzzword in the technology sector. Those who work in this space can easily vouch for the same.
Nowadays, many sectors and industries are already capitalizing on AI and ML technologies to optimize production to enhance revenues and overall profits.
And given the nature of financial markets, it is obvious that AI will have a reasonably large impact on market dynamics in years to come.
Enhanced Data Analysis, Enhanced Risk Assessment, Sentiment Analysis and Better (if not perfect) Predictive Analytics are just some of the outcomes of the increase of AI’s role in the market’s ecosystem. Please don’t get me wrong. I am not trying to say that AI will be able to predict movements in stock markets. All I am saying is that AI’s ability to crunch huge datasets and use above-average intelligence to analyze it, will help democratize stock market and financial analysis for small market participants as well.
There was a time several years back when very few people invested/traded in stock markets. But the rise of online and low-cost trading platforms democratized the sector and as a result, the number of market participants has increased several times. It is another matter that the probability of investing success is much higher in long-term investing and much less in short-term trading as highlighted in this recent study.
It is often said that investing is simple but not easy. And as a result, most people are unable to get the investment outcomes that they aim for. And the reason for this is related not only to Behavioral analysis but also to the fact that most people have nothing to do with the financial markets on a day-to-day basis and hence, don’t understand properly about market dynamics and interdependencies. And this is where AI can be helpful. AI’s ability to crunch huge datasets will help democratize stock market analysis for small market participants as well and help them in better decision-making.
But does it mean that artificial intelligence will one day replace financial expertise?
While doomsday scenario fans will be happy to say that one day AI will take over the world (like in the Hollywood movie franchise Terminator), the chances of the same happening are too low, at least for now. AI-powered tools can be excellent enablers for traders and investors and as a result, help them make better investment decisions. Smart traders can benefit significantly from AI tools. Automation is a great feature embraced by many businesses because it handles various tasks repeatedly without your physical involvement. It has also been embraced by the top AI trading platforms. In Algorithm-based trading, the official site system trades on the trader’s behalf once the logic and algorithm have been locked in. And while everyone doesn’t have the right trading skills, AI tools over time can help improve the same for the people who want to get into trading in a serious manner.
While everyone agrees principally with the transformative power of AI in the financial sector, one of the key concerns about AI revolves around the potential over-reliance on AI models and giving up too much control over the machines. As a result, one needs to be careful about the risk of overlooking or underestimating the value of human judgment in critical times. It is just like a pilot flying an aircraft. While an auto-pilot can take care of flying most of the time, one cannot ignore the role of a human pilot in times of turbulence or critical landing/takeoff manoeuvres.
So even though in the future AI may rise and play a more dominant role, as of now (with AI still evolving and in its early days), it is important to strike a proper balance and combine human experience with AI. Instead of AI being solely responsible for decision-making, it can serve as an enabler and a useful tool.