Online trading

The Many Ways Artificial Intelligence Is Transforming Online Commerce

The concept of e-commerce has been around since the heyday of the Internet. First emerging in the second half of the 1990s, investors at the time had relatively few options. Systems were rather obtuse and user-friendly platforms were rare to find. Also, latency rates (the time it takes to update real-time data) were quite slow. So it makes perfect sense that many traders still prefer to interact with physical brokerages.

Of course, times have changed dramatically over the past two decades. It is now possible to execute transactions in a fraction of a second. Well-known platforms offer a multitude of technical tools and investors can choose from an impressive range of asset classes. While this is largely due to human ingenuity, it’s equally important to highlight the increasingly important role of artificial intelligence (AI).

What exactly is artificial intelligence? What can it be used for in the world of online investing? How will this benefit traders? What breakthroughs could we see in the not-too-distant future? Whether you are a seasoned trader or a novice, the answers to these questions should be explored in more detail.

Definition of artificial intelligence: the basics

For the sake of brevity, we won’t go into the more technical aspects of AI. A simpler definition should suffice. AI involves the ability to extrapolate conclusions based on specific data sets. The result is the ability to create “intelligent” machines that appear to think and act like humans in terms of deductive abilities.

Note that the term like humans was used in the previous paragraph. It is not yet possible to create an artificial intelligence system that exhibits traits that can be defined as truly human. Perhaps the main takeaway here is that AI systems can often be used to perform processes that would otherwise have to be done manually. Examples include smart search results provided by Google and targeted advertisements based on a user’s previous browsing history. So how does AI fit into the world of online investing?

AI and the online trading community

Due to the sheer reach of this technology, it enjoys a plethora of applications in the world of digital commerce. Let’s take a closer look at some of the most interesting uses.

As an educational tool

Online trading requires patience, time and great experience before achieving success. The only problem here is that many concepts can be quite difficult to understand; especially when dealing with novices who have only recently become involved. This is when the power of AI will come into play.

Artificial intelligence and machine learning can be used to answer user-generated questions such as “what is FTSE?” or “what types of currencies can be traded as futures contracts?”. These queries will then be answered in simple formats such as “the FTSE is a list of the top 100 companies found on the London Stock Exchange” and “it is possible to trade CFDs on EUR/USD or bet on the UK 100 ”

In other words, traders who want to gain an edge can take advantage of a wealth of information that is just a few clicks away. Many websites have also integrated smart search widgets into their architecture so that users find what they are looking for quickly.

Take the guesswork out of big data

One of the challenges that has always been an obstacle within the e-commerce community is the amount of data present. While this may be great news for those hoping to keep abreast of the latest moves, the fact is that interpreting this data is extremely difficult and mistakes will often be made.

Artificial intelligence is able to gather, analyze and interpret millions of data points in seconds. These results will then be organically synthesized and presented to the merchant in question. Examples may include (but are certainly not limited to): The chances of an economy going into recession. The impact of a change in interest rate relative to a certain index. How regional conflict can impact the price of commodities such as flour and wheat.

Thus, investors can make more informed decisions in a fraction of the time that would otherwise have been required.

The ability to spot longitudinal trends

The value of a short-term position is naturally based on longitudinal sector trends. So even day traders want to take advantage of artificial intelligence in terms of predicting the economy and the performance of their assets.

This has represented one of the holy grails of investing, as those who seemingly possess a “crystal ball” are far more likely to enjoy steady returns over time. Thanks to the notion of big data mentioned in the previous section, such a capacity has become much more realistic. However, it should be mentioned that even the most advanced AI systems will still make mistakes.

Speech and language processing technologies

This is another interesting facet of AI. The ability to accurately recognize speech is an emerging technology and will most likely take a few years to perfect. Yet we’ve already seen platforms such as Amazon Alexa and Google Assistant enter mainstream society with considerable success. So it seems only a matter of time before they make their presence known in business circles.

Perhaps the main advantage here is that orders can be executed on the go without the need to manually enter orders. This could represent the ideal solution for those who use their smartphones to access well-known platforms. It will indeed be interesting to see what the not so distant future may hold for us.

Very precise risk analyzes

One of the primary goals of any investor is to mitigate the risks associated with an open position. Although it is impossible to eliminate these risks entirely, artificial intelligence offers the possibility of mitigating its effects in the short and long term. This is often the result of extremely advanced algorithms as well as predictive analytics.

As BBVA notes, these algorithms can also be used to identify new investment opportunities that follow the preferences of the trader in question (2). For example, those who prefer lower risk assets may be offered options such as fixed annuities or money market funds.

Removing Bias from the Equation

Investor biases (like a preference for a certain company even if it performs poorly) can also be resolved using AI. Collecting and interpreting market data objectively will provide a much broader analysis of an asset without it being tainted by emotional “filters” including greed, hesitation or even fear. Therefore, more informed decisions can be made in a timely manner.

Are there any downsides to the emergence of AI?

So far, we have focused on the benefits of artificial intelligence in online investing. It is nonetheless prudent to mention a few potential pitfalls. Here are some concerns that have already been voiced by industry experts:

  • The high cost of this technology can result in expensive subscription packages and/or limited availability.
  • Some cite a lack of regulatory oversight at the moment.
  • Even the most advanced AI systems can sometimes make mistakes.
  • AI may not take into account ethical investing (important regarding the growing ESG trend).

Moreover, there is always the possibility that merchants rely too much on this technology. If they fail to learn the fundamentals of investing, they could very well put themselves at significant risk.

Artificial Intelligence: The wave of the (financial) future?

In the end, we are forced to ask a simple question. Will artificial intelligence become the engine of the online investment community? Some experts will note that this seems to represent another stage of evolution in the digital world. Others believe that traders will always rely on acquired knowledge and instinct to determine the policies they choose to follow. The truth is that nothing is certain.

That said, it’s impossible to overstate the role artificial intelligence is already playing. From advanced mapping capabilities to deep knowledge repositories and automatic trade executions, this technology certainly shows no signs of slowing down. It is therefore a good idea to keep up to date with the latest innovations in order to stay ahead of the curve. Either way, there is no doubt that artificial intelligence and machine learning are here to stay.

*Spread bets and CFDs are complex instruments and come with a high risk of losing money quickly due to leverage. The vast majority of retail client accounts lose money when betting on spreads and/or trading CFDs. You need to ask yourself if you understand how spread betting and CFDs work and if you can afford to take the high risk of losing your money.

*The marketing of CFDs and spread betting is not intended for US citizens, as prohibited by US regulations.

The information provided in this article is provided for informational purposes only and should not be construed as investment, tax or legal advice.

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