If you think AI still has a long way to go before it enters the stock market, you’re mistaken. Because hundreds, probably more companies have already started hitting the plans to use AI for stock market trading.
For instance, Goldman Sachs, a renowned bank in the USA, led a $72.5 million funding round in an AI and ML specialist (H20.ai) to adopt AI models within the equities trading business. And this was in 2019. You can only wonder how many more companies in the finance sector have adopted AI to benefit from the stock market.
But the question is, does AI in stock market work?
This blog talks about everything from what AI is and how it is impacting the stock market to AI that can predict the stock market and companies that use AI in different ways to profit from the stock market. You’ll also find some popular tools that you can use for stock market analysis and so much more. So, read in full.
Before we move to our main topic, let’s briefly understand what AI is.
AI or Artificial Intelligence is a technology that lays stress on developing intelligent machines that can work like humans. Common examples of AI in real life are speech recognition, facial ID, weather prediction, etc.
Machine learning, an application (or subpart) of Artificial Intelligence, enables machines to learn with experience just like humans. With machine learning, machines are fed with different sources of data which they use to learn, evolve and become better on their own. And this technology has a major impact on the stock market. How? Find out below.
When it comes to finding the right stock, a lot of research goes into it. For instance, you have to analyze financial statements, revenue, P/E ratio, dividends paid, profit, loss, and whatnot. And this requires an immense amount of time.
However, AI in the stock market solves this problem. By using AI analytics (that uses machine learning), you can crunch all types of data from different sources within seconds. And this way, finding the right stock to invest in becomes a piece of cake.
AI has reduced both the time and effort required to invest in a stock. People, especially in India, are crazily opening dematerialized (demat) accounts as they can easily choose which one to invest in.
For instance, according to Business Standard (published on 15th April 2022), the number of demat accounts in India jumped 63% to a whopping 89.7 million in the financial year 2021-2022.
Emotional investing is one of the biggest enemies of retail investors. It’s basically a phenomenon wherein individuals base their investment decisions on emotions such as greed or fear. And such financial decisions based on emotions are usually less intelligent.
For instance, if you fear that a stock may go down and sell all your holdings without solid research, what you’re doing is an emotional investment. And it’s highly likely that you’ll lose money.
Fortunately, AI in the stock market can help. Artificial intelligence knows no emotion. All it knows is algorithms, logic, and the data it’s fed. This way, you can refrain from making a hasty decision based on emotions and thus save money.
As AI is pushing emotional investing out of the picture. It’s making investors smart. People are now able to make decisions that are based on data and logic. This way, they’re becoming smarter and losing less money.
Prediction is an integral part of the stock market in general and stock trading in specific.
An investor performs technical analysis by understanding the historical data, noticing patterns and then analyzing the fundamentals to determine what will happen to the stock. And you can call this phenomenon prediction, based on which, buying/selling decisions are made.
While some people are remarkably good at predicting the stock market, the risk of losing always prevails. Because missing out on even the tiniest bit of information can lead to horribly wrong outcomes.
However, AI can help. AI in the stock market can help you perform technical, fundamental analysis and recognize patterns better than humans. What’s more, AI can process the latest news, blogs, and interviews to understand and predict how the stock will perform in a more accurate manner. And this improves the overall chances of you making the right prediction.
While you can call prediction a calculated guess, several people rely on AI for the same. And with AI in the picture, predictions are becoming more reliable, which is motivating more people to invest in the stock market. Also, it’s fueling startups operating in this domain to work harder and produce better systems.
Don’t have time to stay in front of your TV/laptop/phone screen for stock updates?
Well, AI platforms make this possible. With the help of AI tools such as eToro Copy Trading, you can automate trades and set your entire or some of your portfolios on autopilot. The platform will charge you a fee and will use AI to make buying or selling decisions. Sounds lucrative, right?
Please Note. No matter how lucrative it may sound, you should always have control over the decisions you make. Completely relying on AI for anything, let alone the stock market isn’t recommended.
With the ability to automate trades, AI is making the stock market more accessible. More people, regardless of their profession, are entering the industry relying on AI-based automated trading tools.
Hiring a stockbroker is quite costly. You need to pay a commission for every trade the stockbroker makes on your behalf.
However, with AI in the stock market, you can reduce these costs to a minimum. Although you may have to maintain the computer/mobile on which the AI software runs, it’ll still cost you less when compared to hiring a stockbroker (human).
While AI is helping reduce the overall cost of trading, it’s also impacting the jobs of stockbrokers. After all, if you can pay less and subscribe to an AI tool, why would you hire a physical stockbroker, right?
Yes, AI can help predict the stock market, or how the stocks will perform, to be specific.
AI uses technical analysis, i.e., analyzing the past movements in stocks and patterns to predict how the stock will perform in the future. While this may sound legit, these predictions are merely calculated guesses and can go horribly wrong.
For instance, a stock of company X trades at Rs. 10. And considering the market sentiments and its previous data and growth, AI predicts it to touch Rs. 20 by the end of the year. Now, this is totally possible. But what if another pandemic hits the planet? What if the CEO of the company defrauds the company?
If any of the above conditions turn out to be true, the prediction made by AI will become wrong, right?
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AI can predict the stock market, but the predictions are prone to errors. While you may notice some AI platforms making accurate predictions, you should still know that there’s always a chance of you losing the money.
Therefore, you must not rely completely on AI-based stock market predictions and make buy/sell decisions.
If you think AI can only be used for stock market prediction, you’re wrong. Find below how some different companies across the globe use AI in the stock market.
GreenKey Technologies’ AI makes use of natural language processing along with speech recognition to crawl through notes, financial data, and conversations. All this to save the traders time that they would’ve otherwise spent analyzing the information.
Epoque offers a fully automated trading system that is powered by AI. It uses AI to analyze potential trades, create and execute orders, and machine learning to learn and become better.
AITrading makes use of the trading community along with AI to scan the markets and find optimal trading opportunities.
Techtrader combines a human-like perspective with attention span and the displacing of a machine (artificial intelligence), requiring no human intervention at all.
Sentient Investment Management uses AI to create investment and trading strategies. The company’s distributed AI system regularly processes tons of data and learns from the same to produce strategies that are better than before.
Trade Ideas is a platform that you can use for opportunity detection, backtesting (checking how strategies perform), stock trading, risk analysis, or even performance trading. This platform’s AI closely watches ETFs and stocks in real-time, offering you better and latest opportunities.
Trend Spider is actually a set of AI-based tools that you can use to generate smart charts to predict trading opportunities. You can also backtest a strategy using years of data and execute the same if it works.
Trading Technologies is yet another AI-based platform that’ll help you with charting and stock market analysis. You can also perform options trading, spread, and algorithmic trading as per your liking.
Blackbox Stocks comes with pre-market and post-market scanning, along with volatility indicators. You can not only find good stocks but also learn a lot about the stock market from this tool.
Kavout is an amazing tool that combines the human mind and artificial intelligence to recommend stocks. It’s data-driven and analyzes about 200 factors before recommending a stock.
AI has come a long way from being used in banks for fraud detection to a stock market prediction tool, and this trend is expected to grow even further in the coming years. For instance, Business Insights states that the global AI market is expected to touch $267 billion by 2027. Now that’s a whopping sum.
But how can you benefit from this? If you have an idea or an established business that could benefit from artificial intelligence, machine learning, big data, deep learning, or any other modern technology, you can get in touch with DataToBiz.
DataToBiz is a well-established team of experts that helps businesses of all sizes turn their ideas into reality by implementing the latest technologies. So, if you even vaguely think that technology can boost or benefit your business/idea, contact our team for a free strategy session!
They have the experience and agility to understand what’s possible and deliver to our expectations.
