The New Age Of Trading AI Could Take Over The Market
Artificial intelligence (AI), although they have become a recurring theme today and although it may not seem like it, they have been immersed in the world of financial markets for years. Even going so far as to cause some disasters along the way.
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Not long ago, a piece of news came to light and is going around some social networks like Facebook and Twitter about the possibility of using ChatGPT to predict market movements. But is this actually possible? The answer is "Yes", it is possible to use this AI to create predictive models thanks to its ability to understand patterns. Many users of social networks stated that the incursion of AI would completely change the markets.
Artificial intelligence exists of many types, each one has a different way of interacting with human beings and first of all, it must be understood that AIs depend on their application and the way they learn, for example. ChatGPT uses a system called “deep learning”. What differentiates it from many other AIs, it has greater ease of communication with people thanks to the GPT engine (pre-trained generative transformer) which is capable of communicating using very natural human language, which is something wonderful for the world of science.
In addition to Deep Learning, there are several learning methods such as natural language processing (Natural Language Processing or NLP), which is capable of understanding human communication and interpreting it and giving a coherent answer to any question. There are also those of Machine Learning (machine learning), which allow identifying patterns within a conglomerate of data which is used to read patterns in the market.
Smart Algorithmic Trading |
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Since the year 2020 the growth and development of artificial intelligence has been constantly increasing so much so that the world champion and one of the best chess players could not beat a computer that at that time did not have the intelligence that a computer can have today. today and I'm talking about Garri Kasparov. Artificial intelligence can predict hundreds of moves before the player moves his piece and know what specific response to make to that move, this could also apply to the cryptocurrency market or the stock market.
In the past I have read some articles that say that the New York Stock Exchange a quarter of the market is operated by artificial intelligence. This could mean that most of the market is moved by automatic operations through bots with artificial intelligence of the NLP type. One of the advantages is that AI is that it has the capacity to process thousands of news items worldwide in a matter of minutes and thus be able to quickly find a possible cause that can define the trend of a stock action if the stock goes down or up.
AIs and disasters in financial markets |
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If artificial intelligence is the future of our civilization and is the panacea in financial markets, not everything is rosy as we can see. Why reason? AIs do not know about human emotions and that is a defect that they have since they simply operate based on data and patterns, which can lead to some problems.
Let's give an example: Between 2010 and 2012, there was a phenomenon that rarely happens and experts call it flash-crashes. These are serious stock market crashes that happen in a matter of minutes, even seconds, but profoundly affect a global financial market both crypto and the stock market if I'm not mistaken, because they liquidate traders' positions. And who has been the cause of these flash-crashes? The AIs.
Since an AI only follows patterns and acts automatically when it detects a trend it will start trading in favor of that trend. In a flash-crash, a simple mistake causes the AIs to start trading lower, which causes the rest of the AI to replicate this behavior and all start trading lower causing a total market crash. In a matter of seconds, Al can detect the error, although it is already too late and the damage is done.
The latter is because this move can liquidate billions in positions, as it is totally unexpected and goes against market logic. |
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