Artificial intelligence (AI) has revolutionized trading, allowing seasoned professionals to make data-based decisions and helping beginners get the hang of the process. Anyone can utilize AI-powered tools to make profitable trades, even without technical knowledge and experience.
Being suitable for newbies and experts makes AI-based trading perfect for executing orders and getting a piece of the financial pie. Here are the six benefits you can expect, whether you trade stocks, bonds, options, currencies, CFDs (contracts for differences), or other securities and derivatives.
- Advanced automated trading
Automated trading has been around since the 1970s. That’s when traders started using rule-based computer algorithms to execute trades. AI has taken it to another level.
Traditional algorithms can’t learn from data – they only follow programmed instructions. AI leverages machine learning to collect and analyze information, generate real-time reports, update trading algorithms, and execute trades.
That’s perfect if you have a diversified portfolio that requires significant time and effort or don’t have the time for active trading. AI can help you earn a passive income, whether you use algorithms to trade stocks on the New York Stock Exchange (NYSE) or a trading platform like Immediate Edge for automated CFD trading.
- Fast market research
Research is crucial to evaluate a specific security’s performance, market value, sentiment, and other factors. For instance, researching a particular company helps determine if buying its stocks would be profitable.
However, gathering data for fundamental analysis is time-consuming, and time is money. Stock prices can fluctuate within minutes – cryptocurrencies are even more volatile.
AI can significantly reduce research time, accessing millions of data points to gather information according to your instructions. It can collect multiple companies’ financial statements, revenue records, price-earnings (P/E) ratios, and other data showing their earning and growth potential. It can help you make informed decisions and wise investments.
- Accurate predictive analysis
AI-based algorithms are ideal for advanced technical analysis, as they can analyze historical data to detect recurring patterns and forecast price movements. That way, they can help traders minimize risks and maximize potential profits using dynamic risk assessment models.
However, they can use more than statistical trends and past market data to identify trading opportunities. They can analyze the latest news, social media posts and comments, forums, blog articles, and other relevant information to determine market sentiment.
These extensive data sets enable AI to conduct fast and accurate predictive analysis to help traders make data-driven decisions. They can determine price movements in bullish and bearish markets and respond accordingly to current conditions.
- Low trading costs
Many traders use a high-frequency trading (HFT) method to analyze markets and execute trades. This systematic trading involves computer programs with complex algorithms to accelerate order execution and increase order-to-trade and turnover ratios.
Throwing AI into the mix can significantly reduce trading costs. Automation is already cost-effective, but AI takes it to another level by quickly responding to current market conditions and making accurate predictions, thus decreasing overall costs.
Eliminating human error also reduces costs. AI doesn’t need rest to recharge its batteries and clear the mind – it can operate 24/7 with high efficiency and accuracy. Fast transactions and more time to execute trades make AI an ideal cost-saving tool for any trader.
- Backtesting strategies
Backtesting your trading strategies is an excellent way to increase potential profits and minimize losses. It involves using historical data to assess a specific strategy or pricing model’s accuracy and performance without risking capital. For instance, if it has performed well in the past, it’s likely to do well in the future.
The keyword is “likely” because past performance doesn’t necessarily indicate future results. However, you can supercharge backtesting accuracy with AI.
AI can apply a predictive model to historical data to help you backtest any strategy and avoid behavioral mistakes. Its accurate results can help you save time and effort while making data-driven decisions.
- Emotion-free trading
Emotions like excitement, fear, overconfidence, and greed often influence people’s decisions in trading. However, letting emotions get the best of you could risk your strategies and portfolio.
You could blow up your account faster than you can say “trade” if you can’t handle your losses. The same goes for expecting further profits after a few winning trades without calculating risk.
Although you can master trading psychology with practice, you can keep emotions out of your trades by letting AI take the wheel.
AI doesn’t feel emotional distress or have mood swings – it uses computer algorithms and logic to generate reports and execute trades. It doesn’t make errors or subjective decisions but focuses on numbers.
AI-based trading is reshaping financial markets, helping beginners and professionals automate trades, minimize losses, and maximize profit opportunities.
However, embracing AI doesn’t mean you should take a back seat – that works when you’re a novice trader. Trusting your gut instinct might result in significant profits, although you must have experience and understand how markets operate.
AI doesn’t have that intuition. It can automate repetitive tasks, analyze data, calculate risks, provide accurate forecasts, and execute multiple trades in seconds. However, it still requires human interaction and can’t predict everything across all volatile markets with numerous variables and possible outcomes.