Powered by AI, automated trading algorithms are rapidly taking over the financial world. Because they are safe and can provide stable returns, AI investment platforms Wealthfront and Betterment have attracted millions of investors to join, and countless people believe that AI will play an important role in future stock trading.
The question is: Have we overestimated the capabilities and potential value of AI?
Other investment strategies
First, we should consider the fact that besides stocks, bonds, and index funds, you have many investment options to consider. If you want to make your investment portfolio safer and achieve high growth, the secret lies in "diversification". In other words, you need to learn more and invest in other assets.
In more advanced financial transactions (such as AI futures trading), companies have introduced algorithmic trading strategies, but this strategy has inherent limitations. This is not to say that the power of algorithmic trading has declined, but that for now, AI trading is only used in a few specific areas.
The dangers of overusing AI
Trusting AI in the stock trading process is risky, and we must remain alert to this potential danger:
——Reaction and instant plunge: Most AIs will use specific strategies to react to specific events at runtime. For example, when major stocks fall below a certain point, the AI program sells. The problem is that if too many programs are designed this way, it can create destructive feedback loops. The sell-off causes the stock price to fall further, which then incentivizes buyers to sell further, which then causes the entire market to fall, turning into a disaster. This is not speculation. A similar instantaneous plunge occurred in 2010. Fortunately, modern trading algorithms have been optimized to prevent this from happening again: they are not perfect, however, and this passive strategy can become a real danger.
——Complete dependence on volume: Some people may completely trust AI stock trading. This strategy seems safe, which leads individuals to let it go. If most investments are made according to one method or strategy, it is itself dangerous. It's even more dangerous if large numbers of Americans are wired the same way. If AI trading suffers huge losses and individual investment losses are severe, it could have widespread economic impact.
Limitations of man-made technology
Many people believe that when the AI stock trading system was designed, the original intention was to make it a super-intelligent robot, but the reality is not like this. It is still a program created by humans. When a robot buys or sells, the decision comes from humans, who use their own reasoning and existing historical data to make decisions.
Humans consult a variety of investors and study the historical fluctuation records of the entire stock market. Perhaps AI can improve the efficiency of decision-making (decisions will pursue the highest returns). However, it is important to realize that algorithms are still limited by human knowledge. There will always be an upper limit to how efficient and safe AI can be. You must know that even the smartest economists have difficulty predicting economic trends, and the probability of making mistakes is high.
economic complexity
Our economy is a fairly complex machine involving thousands of variables, some of which we can't even identify, that work together in extremely complex ways. Not all variables are objectively determined, which makes the situation even more complex. We cannot condense variables into a small number of formulas; instead, we must focus on subjective emotions, such as consumer confidence and value perception.
It would be impossible to create a formula that takes into account all the numbers, trends, data points, and emotions. Even if it were possible, developing an algorithm for accurate tracking would be even more difficult than reaching the sky.
The future of AI stock trading
Are we overestimating the value and potential of AI stock trading? Maybe. Over-reliance on AI stock trading does have risks, but the current record is still very good. When providing advice, AI algorithms use the same expertise and data as human advisors. When making investment decisions, trusting AI is no more dangerous than trusting human advisors.
In the future, there will be no upper limit to the development of AI. Eventually, more advanced trading platforms may be able to improve themselves, one day mastering all the complex variables that have eluded human economists for decades.
Original link: https://venturebeat.com/2017/11/13/ais-stock-trading-potential-is-probably-overhyped/
