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The impact of AI on trading and investment

Artificial intelligence is a modern tool for developing strategy in the field of finance. Forecasting is a complex procedure, and working with information sources is laborious. Robots, on the other hand, have the ability to process an unlimited amount of data, so they can seriously compete with traders, managers and hedge fund managers.

Continuous improvement and decision-making using technology allows you to profitably invest money. It is predicted that future university graduates will be able to direct their energies to other more important areas. Technological startups, energy and medicine need specialists who will be engaged in the development of “useful industries”.

AI and record investment returns

For the work of world exchanges, special computers are used that make decisions taking into account the existing algorithms. An investment platform that uses automation systems is capable of providing a high level of income. Changing strategies at high speed and introducing new data are key to AI success. Despite the high speed of automation of world exchanges, bond markets cannot boast of the same efficiency.

Algorithms for replicating investments were developed by a group of researchers from a university in Germany. The models used data obtained from the world’s archives. One of the algorithms developed by scientists from the University of Erlangen-Nuremberg brought a return on investment of 73% (1992–2015). According to the results of the study, it was revealed that the level of annual profitability was 9%.

The investment project has shown good results twice. In 2000, the profit was 545%, and in 2008 it reached 681%. Efficiency was not affected by the difficult market situation, which is not the case for companies that did not apply quantitative algorithms to work.

The study found that the performance of the models declined after 2001. The use of algorithms for trading on global exchanges was too noticeable, and the number of opportunities decreased. However, in some years, the size of the profit fell, and sometimes even showed a negative trend. Thanks to the study, it was revealed that the influence of AI on stock trading and online earnings is increasing.

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AI implementation history

The idea to use special computers arose a long time ago. Algorithmic trading and black boxes are considered analogs of the system. These devices have been in use for over a decade and are still popular. According to the data, trading using algorithms in 2012 accounted for 85% of the market.

Provided that these trends continue in the future, it is predicted that about 90% of trading will be conducted using computer programs. Algorithm developers are moving towards the development of HFT trading. Buying and selling shares using new developments takes a split second. The program quickly analyzes the received data and uses all discrepancies.

The Eurekahedge study took place in January as part of a study of 23 hedge funds that use AI technology. As a result of the work, it became clear that such funds show high results compared to those where the investment portfolio is managed by people. The annual returns were 8.44% and 1.62–2.62% respectively.

The authors of the research work believe that artificial intelligence results are associated with:

● retesting of the received data, and not ordinary accumulation;

● disadvantages of traditional approaches;

● application of ineffective trading models based on the unprofitable backtests.

The algorithm processes data that is received from different sources. Books, tweets, news, financials, and entertainment are the foundation for the robot to work. Thanks to the processing of so much information, it is possible to earn money on the Internet taking into account global trends.

Hedge funds have long worked with mathematicians who develop statistical models using historical data. Algorithms anticipate market opportunities, but AI copes with these tasks much better and faster.

Goldman Sachs, a financial giant that launched the project in 2014, also actively uses the capabilities of hybrid intelligence.

Intelfin’s investment platform has been powered by AI with hybrid intelligence for a long time. A globally gradual transition to robotic systems is inevitable. Robots successfully predict market trends and sell assets more efficiently than humans.

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