Digitized computing has changed the way the stock market operates forever, but the next significant advent that will cause a shift in online trading is artificial intelligence. Machine learning and AI trading are set to change how the industry operates in a variety of ways.
One aspect of online trading that AI is set to revolutionize is automation. Because statisticians and analysts can now crunch more data than ever through machine learning, they believe it might be possible to make predictive models that can automate trading based on market rises and falls and past performance. AI systems have been in use for trading since the late 90s, but until now they have been limited to large hedge funds and megabanks. Now small-time traders are getting access to and creating their own tools for machine learning to make trade bots. One area we can already see this in action is various cryptocurrency trade bots that are active today. The key to online trading is speed and hitting the right predictors. Automation makes this easier than ever.
The type of automated investments I mentioned above are being used by fintech startups like Betterment, Wealthfront, and SoFi to create diversified portfolios that are automatically managed by software. This automation makes investing more open to the everyday person who may not be able to afford to retain a financial advisor or a managed portfolio.
As automation and machine learning becomes more prevalent in trading, jobs will be affected. Analysts believe the industry should expect a shift away from floor trading and to more tech-savvy online trading with data models supported by machine learning algorithms. Programmers who can write the algorithms for machine learning will become in higher demand. Large banks like JP Morgan Chase have already replaced their equities traders with an AI system. Goldman Sachs is looking into automating the process for initial public offerings, which will change how floor-level tasks are managed in the future.
AI Across Sectors
AI is revolutionizing more than just the trading industry. Google is using it to teach its self-driving car fleet the rules of the road. The healthcare industry is looking at incorporating data obtained from fitness wearables as proof of insurability and even as an early warning detection system for potential problems. These core changes will revolutionize one industry after another, which will produce a monumental shift in how these companies are traded. Retailers are already beginning to offer personalized recommendations and coupons based on your previous shopping behavior. This type of data collection will help micro-target advertising, boosting company profits beyond anything we've seen before.
The Near Future
At some point in the near future, humanity will reach a point at which AI can predict trades better and faster than humans. We've already seen AI achieve what was previously thought impossible. While Google has had success in teaching an AI to beat the world's best Go player, the real genius of machine learning comes in how it frees us up from mundane tasks. AI will never truly edge out the human trader because in the end, you're still using your gut to decide whether or not to invest, but AI opens the window to data that took too much time to process before now.