The Future of AI in Trading & Finance

MC² Finance Team

Published in MC² Finance

5 min read

May 15, 2024


As the world witnesses the growing dominance of artificial intelligence (AI) across various industries, the realm of trading is not exempt from this transformative trend.

With the rise of protocols like Unibot and Telegram bots, it seems that many traders are more comfortable entrusting their money to machines rather than making decisions themselves, it begs the question: Will human traders become obsolete?

it is predicted that human traders will become a rarity in the market. The overwhelming preference for AI-driven trading systems is evident. The success of protocols like Unibot and Telegram bots with their power and profitability demonstrated, further supports the possibility of a future dominated by AI in trading.

The Singularity and its Implications:

The notion of singularity, frequently known as the technological singularity, outlines a hypothetical juncture in the future where artificial intelligence (AI) eclipses human intellect. This leads to an era marked by swift and unforeseeable technological progress that challenges our existing comprehension and predictive capabilities.

Economic repercussions of the singularity will be multi-dimensional and extensive and fall into various crucial dimensions such as;

  • Emergence of Fresh Industries and Economic Spheres
  • Wealth Distribution and Income Disparities
  • Alterations in Work and Leisure Patterns
  • Labor Market Shifts and Joblessness
  • Global Economic Power Dynamics

The economic landscape may have to adapt to accommodate AI-infused technologies and services.

Nicholas - Founder & CEO of @AstrabitTrading envisions two sides;

"So I think there are 2 camps There's the singularity camp, which believes that, AI, will eventually eclipse humanity… that's terminator, right? It's Skynet.
Conversely, there is the Irobot isagasimov opinion... It will attempt to take over and will eventually lose because human beings are random, because we are different, because we are unpredictable.
What I think is the most important is creativity.
What is true intel, Is it just the ability to analyze an enormous amount of data at the speed of light?"

This underscores the importance of creativity in the discussion of AI and the singularity. Suggesting true intelligence goes beyond the ability to process vast amounts of data quickly.

Creativity is often considered a distinct human quality that involves the generation of new ideas, solutions, and artistic expressions. Whether AI can ever truly exhibit creativity and innovation like humans is a key question in the debate about singularity.

An important consideration as many people are both worried and inspired by the current landscape of AI technology. If it boils down to or innate creativity then doe we really need to worry, perhaps there is room for abundance coexisting where Ai enhances our economic landscape, with the loss of certain jobs comes the invention of new ones and so on.

The Future of AI Trading Bots and Financial Markets

Mark Richardson - Project Lead @CarbonDeFixyz & @Bancor believes:

AI bots are, trading bots in particular are very profitable right now. But in the future, when they have to compete with each other, it could be that there's no profit to be made anymore, especially if they're all running fairly similar models.

The concern here is that as more trading bots enter the market and their strategies become increasingly similar, the competition among them may intensify to the point where profitability diminishes. This could lead to price stagnation and reduced market volatility, especially if these AI systems exhibit rational and similar trading behaviours. If such a point is ever reached it could mean less market volatility and price stagnation

As Nicholas denotes

Humans create diversity and volatility because people are disagreeing

In a future dominated by AI this would be significantly diminished. Circling back to human creativity our unpredictable nature is worth considering is the lifeblood of our financial markets the unpredictable nature is needed for a healthy ecosystem and competitiveness to thrive.

If markets become too efficient what benefits are there, is consistent stability and near enough guaranteed returns the way financial markets could go with the advancements of AI?

Chris - Co-founder @mcsquaredfi provides an interesting take on the competitiveness in the market being diminished, as he explains the differentiating goals that AI would have;

In a perfect scenario, it would be like, a stalemate, but, the world is imperfect.
And so there will be a ton of AI’s with different intention.
If there's one AI, whose only intention or reason is to make the market move, because maybe it's a market maker, and then you have 5 other AIs, which are like perfect markets. like taking bots.
Then still there will be movement because there's one which has a different intention in it.
And I believe that in a world, there will be a ton of intentions, and that will create movement all the time.

This highlights that even in a complex ecosystem with multiple AI participants, market movements are inevitable.

In the real world, AI systems often have diverse intentions, strategies, and objectives and variations in intentions that can lead to fluctuations in market conditions, so the notion of stale mate due to the efficiencies of AI may be elusive.

True Potential of AI in Financial Markets

Alex - Founder of @CryptoPilot_AI raises an important point that:

We've already seen that algorithms and along with AI can beat 98, 99% of retail traders. But then again, retail traders aren't the best example of, you know, successful trading, you really need to measure up against, I guess, what fund managers have done over the last maybe 10, 20, 30 years.

To truly gauge the potential of AI in financial markets, it becomes imperative to assess its performance against seasoned fund managers, who have been navigating the intricacies of the market for decades.

This comparison holds immense relevance for the future of AI trading bots and financial markets. It raises questions about the capabilities of AI in managing investments at a professional level and competing with experienced human traders.

If AI can consistently outperform seasoned fund managers, it may lead to a paradigm shift in investment strategies, reshaping the dynamics of the financial industry. Moreover, it underscores the need for continuous evaluation and adaptation of AI technologies in trading to ensure they remain effective in an ever-evolving market landscape.

The quote reminds us that AI's future in financial markets is not solely about outperforming retail traders but also about its potential to revolutionize the performance of traditional investment strategies.

The growing Shift Towards AI:

Still it cannot be overlookd there is a growing demand with AI and fincial markets for several reasons.

  • Data Processing: Financial markets generate an enormous amount of data, and AI excels at processing and analyzing vast datasets. AI algorithms can quickly sift through this information to identify patterns, trends, and anomalies that may not be evident to human traders.
  • Algorithmic Trading: AI enables the development of sophisticated trading algorithms that can execute trades based on predefined criteria or real-time data analysis. These algorithms can operate 24/7 and react to market changes with split-second precision**.**
  • Risk Management: AI can assess and manage risks more effectively by monitoring market conditions and adjusting trading strategies accordingly. This helps in mitigating potential losses and optimizing returns.
  • Market Prediction: Machine learning models can make predictions about future market movements, helping traders make informed decisions. These models can analyze historical data, news sentiment, and other factors to forecast market trends.
  • High-Frequency Trading: AI is particularly suited for high-frequency trading, where rapid and frequent trading decisions are made. This form of trading requires the ability to process vast amounts of data and execute trades in fractions of a second.
  • Portfolio Management: AI can assist in portfolio optimization by diversifying investments, managing risk, and adapting strategies to changing market conditions. This can lead to more efficient and profitable investment portfolios.

With all the positives you wonder why people would want to trade themselves and not leave this all down to the bots

That we would say comes done to human nature, our desire to compete, understand and to win. AI can assist expert traders in various ways providing them with a further edge. These experts, the true traders, we do not believe they come to trade for guarantees, its still a game of wit, it's you against you, vs the market, and so the nature and desire to compete exits. I’s the reason we believe some would still prefer to trade without relying on bots, yes, they can be used for a further edge however it’s still you who is pulling the strings.

The Transformation of Corporate Knowledge

Wesley - Head of R&D @AstrabitTrading sees vast changes coming to the financial industry, like that of how large language models have taken off over the past few years.

We're going to probably start seeing a re-emergence of internal large-scale computing inside corporations that have all of their business knowledge condensed into these kind of AI systems that hold all of the information they could ever need or want to know about their entire business.
And that pertains to the business end market that they are in as a whole… we will see this towards financial analysis, instruments and services.

This signifies that companies with the ability to harness AI's potential and centralize their business knowledge into these systems could gain a substantial competitive edge. Moreover, it raises questions about data security, privacy, and the evolving nature of corporate IT infrastructure in the financial sector as AI's influence continues to expand. In essence, Wesley underscores the expected growth and impact of AI on financial analysis and business operations, highlighting the ongoing transformation of the industry. As AI grows the concern of centralization form large trading firms gaining further control and advantages also arises.

Concluding Thoughts, The Future is Challenging and Bright

The rise of AI in trading poses a significant challenge to human traders. While some argue that human traders may still find opportunities to compete with AI bots, the scalability and superior performance of AI models suggest a future where AI dominates the trading landscape.

The ability of AI to overcome emotional biases and consistently make profitable decisions provides a clear advantage over human traders. As technology continues to advance, adapting to this new reality and finding ways to collaborate with AI will be pivotal for human traders to thrive in the evolving trading ecosystem.

Nonetheless, the potential role of human expertise and adaptability in navigating complex market conditions should not be overlooked. With creativity at our core humans will likely adapt and find many creative use cases for AI in trading, until the day we may reach singularity which will bring with it new ways to navigate the financial markets.

Enjoyed this Blog?

Then here’s what to do next

Checkout the full space here SPACE: AI vs Experts

Be sure to visit and follow all these expert speakers!

Mark Richardson - Project Lead @CarbonDeFixyz  @Bancor

Nicholas - Founder & CEO of @AstrabitTrading

Wesley - Head of R&D @AstrabitTrading

Alex Marzell - Founder of @CryptoPilot_AI

Chris - Co-founder @mcsquaredfi

Mati - CEO of Quantum Economics

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