Artificial Intelligence & Algorithmic Trading | Advantages & Disadvantages

Artificial intelligence and Trading

February 9, 2021
1 year ago

One of the greatest technological advances in recent years is Artificial Intelligence (or AI), which has become a revolution that is changing the technological and digital paradigm. Machine intelligence is showing its presence more and more in our day to day lives - often improving and facilitating the things we humans can do.

AI has countless applications within the world. And this holds for the financial world too, where AI ​​is being used by traders. It's becoming a fascinating and powerful tool that allows traders to operate automatically within the financial markets through predefined algorithms.

AI, through the processes it uses, can make decisions based on the vast amount of information and data available. In the case of trading, artificial intelligence can analyze massive amounts of complex data from the financial markets. Algorithms can also be updated automatically based on the previous results, leading to learning and thus improving the precision in the decision making next time round.

Automatic trading differs, depending on how it is programmed, into two types: static AI and dynamic AI. In static AI the algorithm cannot be customized once established (it is favorable in a fixed set of market conditions, but in changing conditions, it may have a hard time making the right decisions). And on the other hand, in dynamic AI the algorithm can change according to market conditions.

Some of the advantages of using AI trading systems are:

  • They allow access to any investor, with or without experience.
  • They allow traders to do complex processes in a simpler and faster way.
  • They allow traders to operate in different geographical areas and with different types of assets.
  • They can contribute positively to the functioning of the market.
  • Higher speed.

On the other hand, we also admittedly find some disadvantages:

  • AI can lack "human feeling" or "instinct for a trade", and the operation cannot be evaluated or replaced by the intuitive "know-how" of the trader.
  • Systems can struggle to take into account the current context or situation - especially entirely novel situations.
  • You can only copy automated processes, you cannot create them.
  • The dedicated servers and infrastrcture needed to support AI can cause systems to run slower and worse.

In the unpredictable modern world, where volatility is on the rise, who knows if, of all the processes AI may help us to predict what is going to happen next in the markets with the greatest accuracy. Meanwhile, we will see how AI advances and more and more traders will apply it as a tool to improve their trading strategies.

To learn more about trading subscribe to the Trader Club and our YouTube channel where you will find strategic tools to help you train to become a financial professional.




Learn about Social Trading

Social Trading is a new system that gives everyone access to the world's best traders. You can follow top traders and automatically copy their trades. You make money when they make money with no trading expertise required. This is the Social Trading revolution.