How Will Artificial Intelligence Stock Trading Change Finances?

May 17, 2021 • Devin Partida


It seems like every day, a new use for artificial intelligence arises. If you keep up with AI news, you’ve probably heard plenty about how it can change industries like manufacturing and banking. One less-talked-about but still promising application is artificial intelligence stock trading.

You may not hear about it as much, but AI stock trading is already a popular pursuit. Companies around the world use artificial intelligence to influence investment decisions or help other investors. It’s shown a lot of promise so far, leading some to think it could revolutionize the finance sector.

Can AI stock trading forever change how we interact with the stock market? What can it do for investors now? Here’s a closer look.

How Artificial Intelligence Stock Trading Works

AI can do a lot for the stock market and those who trade in it. For example, in 2019, Nasdaq started using AI to detect irregular activity to reduce errors and manipulation. Most of the time, though, when people talk about AI in the stock market, they’re referring to using it to make informed investment decisions.

Algorithms are excellent at detecting patterns in large data sets and using these patterns to make predictions. With machine learning, they can then teach themselves to classify things and find patterns differently, improving themselves. Stock trading involves a lot of patterns and data, so you can probably see where this is going.

Stock trading AI programs look at historical data and current trends to predict market shifts. They can then suggest when an investor should buy or sell shares in a particular market or company. Some systems with access to investors’ money can even make these choices automatically.

Benefits of Artificial Intelligence Stock Trading

Stock market shifts are notoriously hard to predict, especially for new investors. Since AI is typically better at recognizing patterns than people, it can help investors make smart decisions. People can use it to find new opportunities or judge whether or not an investment would be a wise move.

In the uncertain and constantly changing world of stock trading, a 51% success rate is excellent. Some AI stock trading firms claim they have a 60% success rate thanks to the reliability of their predictions. If AI can deliver results like that consistently, traditional stock trading wouldn’t be able to compete.

AI stock trading programs could even tailor suggestions to investors’ unique portfolios. That way, investors could see what would be the best options for their budget, goals and diversification level. These technologies could remove a lot of the risk involved in stock trading.

Limits to AI in the Stock Market

Given those benefits, how come AI hasn’t become standard in the stock market? For all its potential, artificial intelligence stock trading still isn’t perfect. There are still some obstacles that stop AI from becoming a cure-all for the unpredictable world of stocks.

The stock market involves such a vast amount of data that moves so quickly that an algorithm can’t keep up. There’s also an inverse relationship between capacity and performance in these programs. Larger stock holdings need to be held longer, so systems have sparser data to work with when they deal with more money.

Stock market activity also involves a lot of unquantifiable influencing factors. For one, AI can’t perfectly mimic human behavior since it’s so sporadic. Plus, world events can come out of nowhere. Since you can’t portray all of these factors with logic or numbers, machines can’t always understand or consider them.

Stock Market AI Has Potential, But Won’t Change Everything

As technology improves, AI programs will get better at learning from sparse data. They’ll also be able to process large data pools faster. Simultaneously, humans, who drive market changes, will always be challenging to predict.

The stock market is too vast and volatile for AI to revolutionize it. Still, artificial intelligence stock trading could help many new investors make informed decisions. While it’s not a cure-all, AI is a helpful tool for investing.