Samantha Fischler is a Junior Financial Analyst at I Know First.

I Know First About the Latest in Artificial Intelligence Trading

Summary

Algotrading is programing a computer to trade following a set of rules

Artificial Intelligence is when machines are programmed to make decisions using intelligence

AI is used in many industries for different purposes

Within the finance world, many companies are picking up on the digital trend of artificial intelligence trading

I Know First’s algorithm uses AI and Machine Learning to predict and analyze the stock market

Human traders are not likely to be replaced by machines that use AI

Intro to Algotrading

You’ve come across the term algotrading, black box trading, automated trading, or algorithmic trading so many times, but what exactly is it? Algotrading is programming a computer to have a strict set of rules to follow and once those criteria are met, having the computer automatically complete the trades for you, allowing for increased accuracy and for trading at the best possible price.

Artificial Intelligence: The Basics

I Know First uses an advanced algorithm to predict and analyze the stock market. The algorithm is largely based off of Artificial Intelligence (AI) with aspects of machine learning. AI is the latest digital trend to take hold at many companies across the globe. Artificial Intelligence is a branch of computer science that deals with programming machines to make decisions with intelligence as a human being would.

Artificial Intelligence is not random. It is not simply replacing repetitive and tedious tasks. AI replaces the human decision making process with computer software that is designed to make the same informed decisions making judgment decisions just as any human would. However, while AI uses judgment, it doesn’t allow for the same type of logic that an intelligent human being possesses. It does allow for decision making based on a collection of Big Data and the application of that information to make informed decisions.

Artificial Intelligence is Everywhere

In our digital age, computers use artificial intelligence to do pretty much everything for us. We have the autopilot feature in the latest Tesla cars. Facebook has facial recognition software that detects faces when pictures are uploaded and suggests who should be tagged in the photos. Netflix? You bet Netflix tracks what you’ve watched and bases its recommendations on that. Even credit card companies use AI to detect fraud and unauthorized purchases. Google uses it to predict what you’re going to search based on that one keyword and you can even just hit “I’m Feeling Lucky” and hope that the search engine will take you directly to a page that is relevant to what you are looking for.

Financial institutions also want the latest and greatest in fintech: artificial intelligence based algorithms. Automated trading is used by mid and long term investors and buy-side firms who want to buy many shares of a stock without impacting the price, short time traders and sell side firms, and systematic traders who have decided that it is easier to set their criteria and then have the algorithm trade automatically. By 2035, however, AI is expected to have the same intelligence level as humans. It outdoes the human in that it can work a lot faster and more efficiently in terms of research and the actual execution of the trade. AI generally helps traders manage the plethora of information available about different companies, markets, etc. because no person can keep track of all that information in their heads. Imagine being an analyst doing research about a particular stock: You have an overwhelming number of tabs open on your computer with all the latest news, fundamentals, financial statements, etc. You can’t possibly remember all the relevant information found in each tab, let alone remember what’s in each tab. This makes it quite difficult to make informed decisions because nothing is organized. Think about basing your predictions based on the past. Established companies have years-worth of files and statements that would need to be parsed through. A computer on the other hand can be used to predict the outcome of said stock based off of all of the information that is found in all of those tabs and even more.

Machine Learning

A sub-category of AI is what is known as machine learning. Machine learning is very similar to a human’s learning process. Machine learning is essentially when a computer uses the past to improve upon itself without human intervention and learn more when new information or data is released. Machine learning is key in delivering fast and accurate results in the analysis of big data, with machine learning providing thousands of models a week. Artificial Intelligence takes the knowledge that machine learning provides and applies to it to the decision making process.

I Know First about the Latest in AI

Lately, everyone in the finance world wants software with artificial intelligence and machine learning capabilities because they believe we are at a juncture on the verge of a major breakthrough in AI. Even prestigious investment firms like BlackRock, Bridgewater, and Schroders are investing large sums of money into technology and data management, hiring computer scientists to create computer software that can outdo humans. Charles Schwab Corporation even launched “Schwab Intelligent Portfolios” which is an automated investment advisory service.

I Know First uses their algorithm for 6 main purposes: to forecast the rise and fall of technology trends, forecast demand for goods and services, to manage resources, the market forecast, to conduct “what if” scenarios, and for portfolio management and asset allocation. The AI technology with machine learning capabilities integrated into the algorithm allows for predictions about the future based on the past, the present, and expected future. It allows for easier and extremely comprehensive research that allows for informed investment decisions.

Conclusion

It seems as if robots and artificial intelligence could potentially put many traders out of work and completely outdo humans not just in the world of finance. Not to worry, though! While artificial intelligence is quite advanced, it is not fully developed and will not replace human traders for the foreseeable future. In the mean time, it is just a useful tool that traders and investors can use to diversify and forecast their portfolio’s growth. The power-duo of artificial intelligence based algorithms and educated trained traders is a great team when it comes to making investment decisions. Use of the two in conjunction allows for a perfect medley of human logic and the machine’s impressive intellect.

Bill Gates once said “We always overestimate the change that will occur in the next two years and underestimate the change that will happen in the next ten.” Who knows when the next advance in artificial intelligence or machine learning will occur? What we can say is that when the next advancement in AI occurs, it will be groundbreaking and once again change the way our world works and thinks.

For more information on our algorithm and I Know First’s “What If Scenarios” tool, click here