The days of giving your money over to a human trader may be over. The modern asset manager already relies on incredibly complex computer systems in order to keep up with his or her competition. Very soon, artificial intelligence may be able to remove the human from the center of the equation.
It is no secret that the big guys at investment banks like Goldman Sachs are using vast networks of computers to make their trades. These computer networks are capable of micro trading at a rate much faster than humans can even think to make a round-trip. It is only through this mechanical precision that Goldman Sachs is able to report full years of no daily losses. The only human input in many cases is the initial programming that goes into directing the actions of the computers.
Moving the Humans Aside
Keeping this in mind, the best trading strategies still involve a measure of chance and skill that is still best navigated by a human trader. However, computers that can learn the hidden patterns in human trading may eventually be able to deploy these strategies with more success than humans who invented them.
Trading AI is built on the notion that human traders invoke subconscious patterns into their trading that a computer will be able to pick up given enough input information. The big banks are “banking” on this strategy as truth, and small piggyback investors may have no choice but to follow suit.
The Virtuous Cycle
The latest generation of AI technologies are built on a concept known as the “virtuous cycle”, a process which still places the human at the center of trading strategies. AI is present to give alternatives and quickly navigate the mathematical trade-offs of these alternatives. However, the asset manager is still the final decision-maker on the actions taken during the trade.
The virtuous cycle is complete when the AI assistant learns from the actions of the asset manager. The models that the AI assistant completes in the future are modified by the present actions of the asset manager. Whether a trade is successful or not, the AI assistant will be able to incorporate the results of the previous trade into the next model.
In the overwhelming majority of cases, this ever-growing library of information creates models that are always improving. Moreover, the improvement will never be thwarted by an incorrect translation of the information the asset manager provides.
So far, a completely self-directed AI is still only available in science fiction movies. This means that an asset manager who is making trades is still necessary for the virtuous cycle to improve.
In short, there is not enough information for computers to fully simulate human intellect. Could this change in the future? Experts think so. As computers continue to connect more readily, more computers are built, and more information is shared, the networks of the future will increase the power of AI exponentially over today’s capabilities.
Changes in the Industry
The point at which computers will take over from human asset managers is unclear. However, big banks have already begun to calculate how the tipping point will change the marketplace.
When there is no such thing as human error to modify a trading strategy, will this completely remove trading strategies like arbitrage from the playing field? Elite bankers know, and they are not telling. What they will say is that smaller piggyback traders need to get on board with the new wave of AI right now.
There is no such thing as falling behind this new generation of technology. Once it takes hold, everyone who is not aware of it will be more locked out of market gains than ever before.
Big banks also expect that the removal of human error will tend to consolidate funds back into their hands. In the wake of the 2008 banking crisis, many individuals took their financial futures into their own hands.
More people began to trade on their own, and smaller, more personalized financial services firms popped up everywhere. We can definitely expect to see money moving back into the hands of people who have the best technology available to them.
Traders everywhere should definitely take note of how AI affects the larger traders in the market so that they can keep up with new trends.
Regards,
Ethan Warrick
Editor
Wealth Authority
