AI: A cost-effective game that will fuel further growth in the stock market

By Michael Sprachman, VP of Brokerage Trading Platform, Devexperts

In general, the goal of trading is to make a profit. Its process is tied to decision-making and technical analysis based on statistical data. Analyzing and finding market patterns can be done by humans – and increasingly by technologies like artificial intelligence.

For example, institutional investors have been using trading robots with a focus on tracking price movements for years: according to a study by JPMorgan, over 60% of trades worth over $10 million were executed using algorithms in 2020. Additionally, the algorithmic trading market is expected to grow by $4 billion by 2024, bringing the total volume to $19 billion.

The numbers look significant, but it’s even more important to pay attention to the dynamics.

What drives market participants to use trading robots and algorithms more and more often? Can AI take on other functions for different market participants – like retail investors, some of whom have only started trading in recent years?

In recent years, markets around the world have withstood massive challenges and have grown for several reasons:

  • Rise in remote work due to the COVID-19 pandemic: 10.8 million people were unemployed in the fourth quarter of 2020, up 4.9 million from the end of 2019, according to the Bureau of Labor Statistics. Many of these people were looking for a new source of income.
  • Increasing telecom and internet coverage worldwide has resulted in a large influx of new traders using a variety of online trading platforms.
  • High market liquidity and low transaction costs made trading, especially via mobile apps, accessible to everyone.
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However, by the third quarter of 2021, total stock volume by individual US investors has fallen from 24% to 19%, according to Bloomberg. This is likely due to a combination of causes that include high market volatility and the need for more time sensitive analysis and monitoring tools of the market situation.

When it comes to attracting new traders, lowering the barrier to entry is crucial. A new trader’s success can depend on the ease of use and features of a trading platform combined with their industry knowledge and the time required to trade.

As a result, a broker gains a competitive advantage by reducing either the skill level required or the time spent trading.

To save important traders time, standalone trading robots help to copy and maintain custom strategies.

The production of personalized up-to-date educational content can also be beneficial if it takes into account the latest market events. To make it easier, brokers can leverage generative language model solutions that use AI to generate unique content based on the trader’s interests.

Rapid AI development has not gone unnoticed by retail market participants either. Both advanced and new traders in the financial markets have probably experienced how AI beats humans in solving certain tasks.

However, especially in retail, it is important to have the right tools in order not only to maximize the opportunities for profit, but also to minimize the risk of failure. Innovative AI technologies allow them to effortlessly analyze huge amounts of data, track real-time performance and make smarter trading decisions in the future.

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And as we’ve seen, AI is helping to unlock even larger datasets from structured resources – and has the ability to unlock resources from unstructured datasets like social media. For example, AI-based technical analysis tools are currently being used to provide stock valuations, including buy/sell/hold indicators based on historical performance, tailored to sector and industry benchmarks. Others provide insight into price targets, forecasts, and peer comparisons.

AI won’t be the “silver bullet” for any particular case, but we have seen that the application of AI and machine learning has already improved the collection and use of data and in turn will continue to contribute to more accurate forecasts and the identification of more relevant market trends. And over time, the continued incremental development of automated and AI-powered trading platforms will continue to drive an increase in market participation.