Last updated on November 4th, 2021 at 06:00 pm
Artificial intelligence is quickly becoming involved in every aspect of our lives. From the way that we shop to how we heat our homes, AI seems to be creeping up everywhere. But have you heard of artificial intelligence trading?
Artificial intelligence trading isn’t a new concept: It’s been around for some time and is relied upon by successful traders across the globe. But how valuable is AI in trading and is it set to take over from human input?
In this article, we’ll explain exactly what AI trading is and how it works. We’ll also review whether AI trading systems are really all they’re cracked up to be, as well as answering the question: Is artificial intelligence trading the future?
What Is An AI Trading System?
AI trading refers to the buying and selling of assets without the need for human interaction. This means that artificial intelligence trading covers a broad range of automated trading techniques, through which the AI software makes trades based on pre-programmed conditions.
Artificial intelligence technology uses historical data to enable it to analyse millions of possible scenarios in a split second. The technology can then make logical decisions based on this information.
There are many AI trading platforms on the market which use artificial intelligence to automate trading. This allows traders to take a hands-off approach to trading, eliminating the need to study graphs and continuously watch the market.
How Does Artificial Intelligence Trading Work?
Artificial intelligence trading uses a pre-defined algorithm to place trades automatically, without the need for human interaction. Decisions are made based on historical data which is analysed by the AI trade bot.
Some of the most sophisticated artificial intelligence trading bots in the world are owned by financial institutions. The AI trade bots consistently outperform the markets, with a high success rate.
Retail trading bots aren’t as sophisticated as these high-performing bots. Instead, they’re based on a trading algorithm which has been designed by another trader. The software is typically designed on a rules-based system, meaning that trades will be performed when certain conditions are met.
Benefits Of AI Trading
Now that we understand what artificial intelligence trading is and how it works, let’s look at some of the benefits of AI trading.
Data-Based Trading Decisions
AI trading bots are able to analyse millions of potential scenarios in a split second, simplifying data analysis. A human could never analyse data as quickly as an AI trade bot, meaning that trading decisions can be based upon a far greater quantity of historical data than ever before.
An AI trade bot can perform the research on your behalf, allowing you to take the reins once you have the required data in front of you. This can allow you to take advantage of a greater range of trading activity, without needing to spend time performing extensive manual research.
Trading isn’t an 9-5 venture – it’s always on the go and forever changing. However, it’s impossible for any trader to be on the ball 24 hour per day, 7 days per week. There is only so much time that anyone can spend trading, even for the most devoted of traders.
Utilising an AI trade bot can allow you to take advantage of the stock market, 24 hours per day, 7 days per week. Whilst a human will quickly begin to suffer from mental and physical fatigue, an AI trade bot is able to operate continuously, without the threat of fatigue or irrationality. This means that your trading account can remain open for business at all hours, should you choose.
Removes Emotion From The Trading Process
It’s easy to make emotional trades when you’re trading. This could be a snap decision made through instinct without the necessary research being performed quickly, or an irrational attempt to win back money after a well-thought-out trade goes wrong.
As AI trading systems do not require any human input, they are unaffected by emotions, basing their trading decisions solely on historical data and the rules of the algorithm. This allows traders to avoid the dangers of emotional trading, leaving your trading to the pre-defined conditions which are set out in the AI trade bot’s algorithm.
Suitable For Both Beginners And Advanced Traders
Whether you’re a complete beginner when it comes to trading, or an advanced trader, AI trading systems can simplify trading. Beginners can access the trading market without the need for any prior experience. This enables even novices to dive straight into trading without the need for extensive research, by authorising the AI trade bot to buy and sell assets autonomously.
For more experienced traders, using an AI trading system can enable you to branch into new marketplaces and trade at all hours of the day. It can also help to take some of the pressure off, allowing for reduced stress levels and increased confidence in your trades.
Get Involved In New Marketplaces
Branching into a new marketplace traditionally requires a large amount of research. You’ll need to spend time analysing graphs and watching the market before you begin placing trades.
New marketplaces are also restricted by time differences. For example, trading both the London Stock Exchange and the Australian Securities Exchange would be a logistical challenge due to their significant time differences. This restricts your ability to trade in new marketplaces and expand your trading portfolio.
Utilising an AI trade bot will allow you to expand into any market that you choose, as trades can be placed autonomously by the robot at any time of day. These trades are based on historical data and conditions which are built into the algorithm, meaning that you don’t need to know anything about the market in which you’re trading.
Risks Of AI Trading
Although there are many benefits of artificial intelligence trading, it’s also important to be aware of the risk associated with using an AI trading system.
Relying On An Unpublished Algorithm
An AI trading system can only be as good as the algorithm on which its based. Although artificial intelligence is a powerful technology, it can only ever be as good as its underlying software. As the algorithms on which the AI trading system is based are typically unpublished, there’s no way of knowing exactly how it works and what decisions it will make at any given time.
If an AI trading bot has not been designed effectively, it could lead to you losing money as a result of poor trades.
Scam AI Trading Platforms Are More Common Than You Might Think
Unfortunately, there are many scam AI trading systems out there, meaning that it isn’t always easy to choose a reliable AI trading platform. These platforms will claim guaranteed profits, but this isn’t always the case. For this reason, you need to research carefully before choosing an artificial intelligence trading platform and tread carefully before parting with your hard-earned cash.
Markets Can Be Unpredictable
As with any type of trading, stock markets can change at any given time. Even if your AI trade bot has been giving you consistent results for several months, there’s no guarantee that its success will continue. This is because financial markets are liable to change at any moment.
You’ll need to continuously watch and evaluate your AI trading bot as you’re trading to ensure that the strategy being used is still effective. Although we often think of artificial intelligence trading as fully autonomous, you’ll still need to dedicate time to ensuring that it is performing as it should be.
Is AI Trading Set To Replace Traditional Trading?
Many people wonder if computers will ever be able to completely replace humans in trading. Although artificial intelligence has the ability to make trades smarter, quicker and more effectively, it’s highly unlikely that AI would ever be able to fully replace humans in financial trading.
This is because artificial intelligence has limitations. Although AI has the ability to analyse data far faster than a human, it lacks the critical skill of human intuition, meaning that it can only make decisions based on historical data and pre-defined algorithms. Without these human-made algorithms, the AI trade bot is unable to operate.
The most effective trading strategies involve humans and artificial intelligence working hand in hand. AI is used to analyse markets and identify opportunities. The trader can then use the information derived from the AI software to devise an effective trading strategy which then feeds back into the AI robot for execution.
AI Trading Vs Copy Trading
Whilst artificial intelligence trading involves leaving the market analysis and trading decisions to an automated trade bot, copy trading combines this principal with the knowledge of an expert trader.
As the name suggests, copy trading involves mimicking the actions of a more experienced trader to benefit from their expertise. You simply choose an expert trader whose trading strategy you can relate to, and then mimic their trading movements.
There are a few different ways in which you can copy trade. One option is to use a signal service which alerts you when your chosen trader buys or sells assets, allowing you to choose whether or not to mimic the trade. Alternatively, you can opt for an automated trade bot which autonomously mimics the trades of your chosen trader on your behalf.
Unlike AI trading systems, copy trading brings human intuition into the equation, with the help of the experienced trader that you choose to follow. This means that you aren’t relying on unknown algorithms to make your decisions.
Like with AI trading, copy trading allows you to enter new trading markets with little or even no prior knowledge. This makes copy trading a great way to build experience in trading whilst starting to earn a profit from trading.
Copy trading also allows you to take a hands-off approach to trading. This removes the emotion from trading, preventing you from making irrational trades. It also allows you to trade 24/7, no matter what you’re doing. Whether you’re asleep or at work, your copy trading platform will deal with your investments whilst you get on with what’s important in life.
Is It Legal To Trade Stocks Using An AI System?
It is legal to trade stocks using an AI trading system in most countries, providing the trading platform is properly registered with the relevant authorities in your country. However, it’s important to ensure that the platform you choose is both reliable and trustworthy, as there are many scam sites out there.
Do Trading Bots Actually Work?
There are many great AI trade bots out there which are helping traders to earn regular profits. However, there are also many scam platforms around, so it’s important to be able to separate the scams from the genuine investment opportunities.
That’s why I created my guide to the top 3 copy trading platforms, making the mistakes and doing the leg work so that you don’t have to.
Find The Right Copy Trading Platform To Begin Trading With AI Today
Artificial intelligence is a powerful tool in identifying investment opportunities and performing detailed analyses of potential scenarios. However, AI will never be able to fully replace humans in trading as it lacks the human intuition and understanding required.
Combining artificial intelligence with human intelligence is the most effective way to automate trading. Copy trading is a valuable technique that allows traders to take a hands-off approach to trading whilst still earning a profit.
By mimicking the trading strategy of a more established trader, you can branch into new financial markets and build valuable experience as a trader. Not only that, but you can even trade in your sleep!
If you’re ready to begin copy trading, take a look at my guide to the top 3 copy trading platforms. I know first-hand how hard it is to find a reliable and trustworthy copy trading service. That’s why I’ve spent the past decade researching, testing and reviewing hundreds of trading platforms, making the mistakes so that you don’t have to.
I’m Jon, owner of Trade Wise at https://tradewise.community/ and https://www.youtube.com/channel/UC7VmOx8DbvX4Rbrac2pPcjw
I review forex and crypto trading products and services to find the best of what’s out there for creating a passive income without becoming a full-time trader.