Analysing stocks and other securities usually seems like an extremely time-consuming process to us. Effective risk management requires extensive research and analysis of models, data, and industry news. To make things easier, hedge funds and portfolio managers rely on artificial intelligence and machine learning.
What is artificial intelligence briefly?
The concept of artificial intelligence, which is the subject of research by computer scientists, is rapidly changing. The main goal of these scientists is to create a system that can study a task, accomplish it, and perfect it. In an ideal world, artificial intelligence takes over all the routine work and needs little or no human control. In general, at the moment, artificial intelligence is still at the initial stage of development. Computer scientists are constantly exploring the limits of machine learning, discovering and inventing new ways to use technology every year.
Artificial intelligence’s link to the financial sector
Now that you know that artificial intelligence is not what the T-1000 from The Terminator looks like (although it would be great), let’s see how this technology can restructure the financial sector:
- Signalling of suspicious activity in banking transactions
- Assessment of the volume of supply, demand and value of securities to facilitate investment
- Modelling the economic environment for benchmarking and forecasting
- Analysis of complex mathematical models for strategic planning of operations
At the same time artificial intelligence is already frequently used in Forex trading. According to Topforextradingbrokers.com one of the most notable websites in the foreign exchange field, robots are extremely helpful for traders to analyze trends carefully and without emotions.
How does artificial intelligence help prevent fraud?
According to Shift, a company that processes service payments from bank cards, card theft is the most common form of identity theft, and in 2018 it accounted for 35.4% of all cases of fraudulent activities with personal data. To combat this problem, banks have used artificial intelligence that recognizes patterns of consumer behaviour. The program studies behaviour in real time and upon detecting fraudulent manipulations immediately informs the bank and the client about it.
In this sense, artificial intelligence instills confidence in you that your assets are under the control of the bank.
Optimized investment: artificial intelligence working with numbers
Investing is time-consuming, especially for intraday trading. Analyzing the charts of market movement, supply and demand in the market, as well as evaluating it, is difficult and time-consuming. To simplify the investment process, large hedge funds and portfolio managers are turning to artificial intelligence.
Artificial intelligence takes a large number of variables and calculates a forecast for the direction of market development. This allows portfolio managers to rely on reliable data to better manage risk. And, for that matter, investing your own money is one thing, but working with strangers is another.
Predictable business: predicting is now easy
Business risk management is a critical issue for company management. When analyzing the economic environment, the principles of buffering and smoothing are studied in detail.
Often such an analysis involves answers to various questions from the category “What will happen if …?”
Typically, the management team made predictions using questions and analysis of data models. Based on this, the best possible forecast was made, on which the decisions of the management were based on.
Today AI has made this process easier and more flexible. The company only needs to provide artificial intelligence with the necessary variables related to the economic environment of the business. As a result, AI will provide many scenarios with predictive data for benchmarking.
If during the analysis the company introduces a new condition “What will happen if …?”, The software will easily update the result taking into account the new variable.
Quantitative trading: an advanced mathematical approach to investing
Quantitative trading is a more complex approach to securities trading, at least for the average investor. Using mathematical models, traders can accurately predict market behaviour and make transactions. At first this may seem like the tricks of an evil genius, but no – in fact, quantitative trading is based on computer calculations of a huge amount of data.
Artificial intelligence quickly analyzes this data and sees favorable moments for transactions with securities, based only on their quotes.
Criticism of AI in the financial sector
The fact that even the very concept of artificial intelligence sounds great does not absolve AI from criticism. It is generally criticized for its potential to harm the working class. According to some sources, the financial sector may inherit such problems as price discrimination, biased credit rationing, scalping with super-profits from the use of artificial intelligence. The only way to combat criticism is to ensure the ethical use of artificial intelligence and to treat such technologies with respect.
Artificial intelligence makes life easier for millions of people and especially in finances it can reshape the whole system significantly. It doesn’t matter if you translate text or place a bet on an exchange – machine learning will help you act more confidently. However it certainly has some drawbacks but of course every invention in history, while being advantageous carries several disadvantages as well.