Artificial Intelligence (AI) has made inroads on multiple fronts in our lives. And investing in stock markets is the latest one set to be transformed by advancements in AI. Retail investors are no longer solely reliant on human analysis by asset managers to make profit-making decisions, with AI revolutionising the investment landscape one day at a time.
According to American consulting firm Mercer, 9 out of 10 asset managers around the world use or intend to use AI in some capacity. This highlights the potential of AI for stock market management, the world's largest investment advisory firm said.
One of the obvious ways AI possesses the capability to reshape investments is the processing of financial data in real-time, giving data-based insights at a speed that's unmatched by humans. AI does not only analyse large data sets, but also recognises patterns and relationships in the data that can easily be missed by the human eye. Investment platforms like Alpha Vantage, Trade Ideas, and Macroaxis have already integrated AI tools to enhance the trading experience for its users, although at a premium charge.
AI can also discover unexpected connections between different financial assets (such as stocks and bonds) and other market determining factors, such as supply and demand. It can analyse non-market factors such as domain traffic for a company website to predict stock market performance.
AI can analyse alternative sources of data such as weather forecast and container ship movements to understand their effect on stock markets. A comparative advantage of using AI is the scalability and speed with which data can be processed.
Algorithmic trading, which uses mathematical models with set rules and human oversight, has been in use since the 1980s. This has been revolutionised by recent advances in AI, with AI algorithms capable of processing data in a much more efficient manner, automating decision-making and minimising human error. AI algorithms excel at processing unstructured data such as news articles and social media sentiments, assessing stock markets in real time.
In India, Zerodha, one of the market leaders in trading stocks, has integrated AI tools to provide personalised trading advice to its users. Other market competitors, like Upstox, have also taken to AI for integrating Chatbots. Indian firms have not yet, however, provided a real-time AI-driven solution for stock market trading. This is mainly due to the expensive nature of this technology, with a US-based web application giving these services at $300 a month for a basic subscription that allows only three daily updates.
Industry trends and demands suggest that India is set to take AI for its growing stock market industry, which recently hit an all-time high in market capitalisation in May this year, standing at nearly $5,000 billion.