The rise of artificial intelligence (AI) is having a transformational effect on many industries around the world, none more so than the finance industry. Whether it’s using AI to help people become superior at managing their money or improving quantitative trading decision making and financial risk management, it’s set to revolutionise finance and democratise areas with finance that have long been deemed inaccessible.
Trading, in particular, is one area in finance which is set to hugely benefit from AI. Although AI has been used in the financial markets by big banks and financial institutions for some time, it’s only over the last few years that it has become accessible to retail traders and investors. In this article, we’re going to break down precisely what AI trading is, how it works, and the benefits of using it to grow your money.
What is AI Trading?
In simple terms, AI trading allows you to buy and sell assets such as stocks and currencies in an autonomous manner, all without any human interaction. An AI trading software can trade assets on your behalf by following pre-programmed conditions. By analysing millions of potential scenarios and data points in a split second, it has the capacity to outperform what humans can achieve when manually trading.
How does it work?
AI trading essentially runs on intricate mathematical formulas, with the aim to generate returns. All orders are executed using automated and pre-programmed trading instructions, accounting a variety of factors such as volume, price, and time. Feeding AI predictions into algorithms can allow the trading software to determine when to enter and exit positions and the best assets to long and short.
AI trading software essentially works like a team of highly skilled traders. It can recognise historical and future patterns, and make lightning-fast decisions based on market conditions, faster than any human could.
How is AI trading benefiting everyday traders and investors?
- Doesn’t require knowledge of the financial markets
When manually trading it’s critical traders have an understanding of market fundamentals, and they can grasp why prices of securities move higher or lower. There are constant fluctuations in prices of assets, which requires continuous attention from the trader, therefore to fully understand and learn trading you have to be prepared to make a significant time investment, which many people may struggle to commit to.
AI trading is an excellent solution to this issue if you lack time or knowledge, as the AI can analyse and execute trading decisions on your behalf. This opens up AI trading to non-traders and as the process is a whole lot more passive, due to the trading decisions being executed on your behalf. All the work that is required is to regularly place money into the trading account, from there it can passively grow whilst you get on with the rest of your life.
- Removes emotion from trading decisions
Many traders lose money when manually trading due to emotional biases that distort our decision making. Some of these biases include loss aversion, overconfidence and endowment. These types of emotional biases often cause traders to let their personal feelings and emotions impact their decision-making, which can often lead to more risk-taking and deviating from trading strategies based on greed.
When AI is in control of our trading decisions, it is not subject to emotional biases. AI won’t end a good trade too early or close a bad trade too late, unlike humans. Since AI isn’t subject to emotions and follows pre-programmed algorithms, it can not only work more efficiently, but also make more complex decisions and execute trades faster than any human can match.
- AI can handle and process more data
Applying technical analysis to manual trading is crucial in executing successful trades on a consistent basis. However, spending the time to analyse historical data and statistical trends of different assets classes is not only very time consuming, but very difficult to do. Trading the markets manually requires analysing a large amount of data to discover hidden patterns that can help the trader profit. This can be extremely difficult for a team of traders, let alone a single trader.
Conversely, a high functioning AI trading software programme can analyse, handle and process larger amounts of data than any human can. This enables it to understand the current market direction and anticipate behaviour with high accuracy. With AI trading, the software does all of the hard work of analysing data for you.
AI Trading is the future of investing
AI trading has long only been accessible to big banks and institutions, but there are increasingly more AI trading software solutions such as 8topuz, who are opening up trading to the masses. AI trading is a great solution for traders and investors who are looking for a passive and hands-off way to grow their money consistently every single month.