Back Industry News

Stock Trading Differences in the Age of Artificial Intelligence Posted on May 16 - 2018

Share This :

The Bizarre Paradox of AI (Artificial Intelligence) based Stock Trading and the Efficient Market Hypothesis. Here are some things that stock traders need to be aware of in 2018.

I can still remember reading about artificial intelligence when I was learning to write C++ code at the tender age of 15. If you asked me how artificial intelligence would change our lives, I would talk about the impact of video games or the future of robotics. The thought that AI could be used for stock trading never crossed my mind.

I have recently observed that AI has changed the world of financial trading in ways that I never envisioned. Here are some things that stock traders need to be aware of in 2018.

Artificial Intelligence is a Better Valuation of the Market than the Market Itself

During my MBA program, I heard professors talk extensively about the “efficient market hypothesis.” They said that the market was so efficient that it was impossible to beat it. A few experts like Warren Buffet have consistently realized higher returns than the market, which partially cast this theory into doubt. However, the vast majority of traders have been unable to realize higher than average returns, which made a stronger case for it.

AI is upending this conventional wisdom. Many algorithms have proven to be even more effective at valuing stocks than the market itself. Based on this data, a number of new equity firms have been launched with AI algorithms. Art Armador, co-founder of EquBot LLC, is one of the pioneers in this newly emerging field.

Artificial intelligence may not completely upend the efficient market hypothesis, but it is reframing the discussion. It is even changing the future of penny stocks.

AI-Based Stock Trading Could Become Useless Due to Its Own Effectiveness

It is a strange paradox when something collapses under the weight of its own success. This could very well be the case with AI stock trading.

Some experts have stated that AI trading platforms have made the market even more efficient, which is squeezing even their own edge. View More

x

Get the Global Big Data Conference
Newsletter.

Weekly insight from industry insiders.
Plus exclusive content and offers.