Artificial intelligence and investing have one thing in common: they are all about numbers.
Therefore, it is obvious that investing and trading will benefit from the rise of AI. But will this be a game-changer for higher yields and what can we expect in the years to come?
Fundamental analysis is a time-consuming task for investors. For example, manually researching key financial figures such as market capitalization, earnings per share, revenue, or earnings estimates can easily cost hours or even days of work.
Additionally, comparisons with competitors in the same sector and industry, cross-checking SEC fills, and complementary technical analysis make it even more complex.
Artificial intelligence algorithms do in seconds what investors painstakingly do in days or weeks. Computing power is far beyond all expectations of 10 years ago.
Quantitative investment procedures and high-frequency trading already dominate Wall Street. Hedge funds specialize in trading Apple, Netflix or Tesla shares to make a profit of a penny or less per share.
Combined with the immense trading frequency and high-speed trading executions, even these tiny earnings per share generate millions of dollars in profits for institutions.
Artificial intelligence makes the difference
AI in the investment industry is much the same thing stock analysts, investors and traders used to do manually by reading the latest news and analyzing market trends to identify entry points and Release.
These days, institutions hire armies of mathematicians to decode the market, write API protocols, and use AI-based backtesting software to determine the best trading and investment strategies in each market cycle.
Computer algorithms only know 0 and 1, while people have intuition, are influenced by various surrounding events and can make different investment decisions even though the fundamentals are the same.
But the computer is not only more accurate, it is also much faster. This is not only true for analysis. This is also the case for order routing and trade executions on exchanges like the New York Stock Exchange and Nasdaq.
Hedge funds and other institutional investors pay huge sums to have their servers and data centers as close as possible to the physical location of the exchange.
Milliseconds make the difference to business executions and profitability. Everything from hardware and software to skills and infrastructure must be perfect to achieve the best possible results. So even less obvious things quickly become the main focus.
Peak cables, for example, bring HTF traders closer to the speed of light. The advantages of hollow core fiber – the latest generation of fiber optic cables improves speed by billionths of a second and no more.
But precisely this difference in speed decides success or failure when trading stocks on Wall Street.
Analysis of the announcement of the results of high technology
A company listed on the New York Stock Exchange and Nasdaq comes with various regulatory requirements set by the SEC. For example, companies are required to publish their results every three months.
These reports are usually reported outside normal trading hours. Companies like Apple, Amazon and Netflix report after the market closes, as do Pfizer and Exxon Mobil Corporation.
In this way, unforeseen irrational movements in reaction to announced company figures are avoided.
Decades ago, analysts began reading these SEC filings page by page to better understand the company’s financial condition and interpret the company’s valuation relative to competitors and price. per share.
Today, AI is used in the financial world to read and analyze company announcements and SEC filings. Most of the data is comparable, such as the balance sheet or various financial KPIs. But the AI isn’t just looking for company finances in these fills.
Computer programs also search for important keywords that allow conclusions to be drawn about the current situation, market outlook and company prospects.
Robot advisors for retail investors
Retail investors often use robo-advisors to manage a portfolio.
Artificial intelligence algorithms often complement robo-advisors and help automatically rebalance portfolios. This can be for a portfolio with diversified stocks or assets like exchange-traded funds.
The main benefits for investors are the low costs of using robo-advisors and the convenience of having access to a robo-managed portfolio with minimal self-managed trade execution activity.
Saving time and money are great arguments for using robo-advisors, when there is no evidence yet that AI for retail investors works better during more intense market corrections.
Since March 2009, the stock market has known only one direction – upwards. The SPDR S&P ETF Trust bottomed at $6.7.10 in March 2009 and reached an all-time high at $479.98 in January 2022.
The market correction between January 2020 and March 2020 was too short to finally conclude how much AI has helped investors as the market rebounded from lows to new highs in five months.
Only time can tell if automated trading algorithms are remarkably beneficial to the retail investor.
Digital disruption in several financial sectors
Digital disruption is changing the way we live, the way we work and is revolutionizing sectors like the financial industry. As a result, more and more companies are identifying ways to use advanced technologies to become new business leaders.
For young investors, it stands to reason that businesses can keep pace with the latest technological developments, be it mobile banking, electronic banking or real-time transactions.
One of the latest well-known FinTech trends involves blockchain technologies and associated cryptocurrencies such as Bitcoin, Ethereum, and Litecoin. No other area of the financial industry is currently as influential as crypto.
More and more platforms, services and vendors accept cryptocurrencies as payment methods, implement relevant APIs and develop technology-related products, such as non-fungible tokens.
Companies like MicroStrategy., Tesla, and Square officially hold over 175,000 Bitcoins, with a current value of over $7 billion.
The AI trend is here to stay. It will continue to influence our lives. Artificial intelligence will further help companies increase profits, reduce risk and provide even more valuable solutions to investors.