Artificial Intelligence (AI) has made inroads into our lives on many fronts. And investing in the stock markets is the latest to be transformed by advancements in AI. Retail investors are no longer solely dependent on human analysis done by asset managers to make profit-making decisions, as AI is revolutionising the investment landscape by the day.
According to US consulting firm Mercer, 9 out of 10 asset managers worldwide use or intend to use some form of AI. The world’s largest investment advisory firm said this highlights the potential of AI for stock market management.
One of the obvious ways AI has the potential to reshape investing is through the processing of financial data in real-time, providing data-based insights at a speed unmatched by humans. AI not only analyzes large data sets, but also identifies patterns and relationships in the data that can easily be missed by the human eye. Investment platforms such as Alpha Vantage, Trade Ideas and Macroaxis have already integrated AI tools to enhance the trading experience for their users, albeit at a premium fee.
AI can also discover unexpected relationships between different financial assets (such as stocks and bonds) and other market determining factors such as supply and demand. It can analyze non-market factors such as domain traffic to a company’s website to predict stock market performance.
AI can analyze alternative sources of data such as weather forecasts and container ship movements to understand their impact on stock markets. One comparative advantage of using AI is the much greater power and speed at which it can process data.
Algorithmic trading, which uses mathematical models with set rules and human oversight, has been in use since the 1980s. Recent advances in AI have revolutionised it, with AI algorithms able to process data more efficiently, automate decision-making and reduce human error. AI algorithms are excellent at processing unstructured data such as news articles and social media sentiment, assessing stock markets in real-time.
In India, Zerodha, one of the market leaders in stock trading, has integrated AI tools to provide personalized trading advice to its users. Other market competitors such as Upstox have also resorted to AI to integrate chatbots. However, Indian firms are yet to provide a real-time AI-powered solution for stock market trading. This is mainly due to the expensive nature of this technology, with one US-based web application offering these services at $300 per month for a basic subscription that allows only three daily updates.
Industry trends and demand show that India is poised to adopt AI for its growing stock market industry, whose market capitalisation hit an all-time high in May this year at nearly $5,000 billion.