The Best Stock Picker on Wall Street: Application of AI in Stock Trading

Over the years, advancement in computing technologies have had enormous impact on financial trading. It is computing that has made it possible to track financial markets that shift with terrific speeds by facilitating high-speed calculation of numbers. And now we have Artificial Intelligence (AI) showing signs of revolutionizing the finance industry once more.

Artificial Intelligence and Stock Trading

AI and finance are essentially built for each other. As one of the most widely used machine learning techniques for creating new systems, AI makes it possible to spot patterns that the human brain can’t. Finance finds AI extremely useful since it is highly quantitative. Big financial services firms are investing heavily in this technology and many medium-sized financial firms are conjointly investigating and implementing the application of AI and machine learning in general to various operations.

While the application of AI in stock trading is not an entirely brand new development, access to its possibilities has been limited to giant corporations. Things are changing now as AI is becoming more mainstream.

 

AI conquers Wall Street

The last couple of years have brought major changes to Wall Street with regard to stock trading. It’s amazing that one of the best stock pickers isn’t human.

In 2017, the first 100% AI-powered investment instrument made its debut on Wall Street. Popularly known as the AIEQ, the AI-powered Equity Trading Fund (ETF) is an actively managed portfolio that’s powered by IBM’s Watson, an AI-enabled supersystem that processes and analyzes news and reports associated with 6000 US companies.

The AIEQ stock picker analyzes millions of information bits every day to maintain an active portfolio of up to 100 stocks. Experts say that the stock picker analyzes a data load equivalent to that of 1000 research analysts, which makes it more efficient in identifying stocks likely to outperform the market. The most intriguing thing about the system is that it examines its own performance with its learning capabilities to make better, more accurate decisions in the future.

The AIEQ has portrayed unique performance since its introduction. It went up 1% in its first week on the market, and by August 2018 its shares had risen by 20%. This year, the AI-powered equity ETF has almost doubled the S&P 500’s gain.

Every trader is looking for ways to predict stock market moves more accurately. The new revolution in AI promises to hand the finance industry more capabilities of predicting the future with greater precision. If not anything else, the rush by Wall Street to embrace AI and hunt for machine learning talent should be enough evidence. However, a pertinent question on the application of AI in financial trading has risen: Can trading be fully automated?

We can take a lesson from Tesla about the effects and outcomes of automation. Elon Musk recently argued that using robots in auto assembly has gone too far and that humans are needed back. While the power and speed of AI-enabled systems and new prediction machines is enamoring, there is a risk of losing competitive advantage if companies rely solely on machines.This is likely true for the finance industry. AI application may change trading jobs but it should not be let to make human trading completely obsolete.

Get ahead in stock trading

Admiral Markets Australia keeps you updated on everything about financial trading, whether you are interested in stocks, Forex, commodities, CFDs, ETFs, or any other financial instrument.

Many professionals from both the tech and finance fields have proposed that combining human competencies and new innovations is the way to go. Almost every competitor will be using prediction machines. One downside of these machines is that they work as if what hasn’t occurred in the past will not occur. If companies rely only on algorithms to trade, the risk of trading could be heightened because only humans can identify and take into account risks that are unrelated to past performances.

The roles of stock analysts and traders are bound to change. These professionals have been spending most of their efforts in developing deep industry knowledge to understand and gain from market news and events. Today, firms needs people who can find unique insights and feed them into prediction machines. Technology has not advanced to a level where analysts and programmers can just input stacks of data and expect results because too much of the data is redundant and cannot produce useful insights. It is the role of analysts to understand what generates the data. This requires experience, talent, and artistic vision.

In conclusion, it is undeniable that AI has brought the best stock picker to the financial trading space. This doesn’t mean that human input in stock trading is no longer needed. The experience of human traders is needed now more than ever for sustainable competitive advantage as every company is going for machine learning. Humans and machines should complement, not substitute each other.