“Artificial intelligence is to trading what fire was to the cavemen.” That’s how one industry player described the impact of a disruptive technology on a staid industry.
In other (less creative) words, AI is a game changer for the stock market.
While humans remain a big part of the trading equation, AI plays an increasingly significant role. According to a recent study by U.K. research firm Coalition, electronic trades account for almost 45 percent of revenues in cash equities trading. And while hedge funds are more reluctant when it comes to automation, many of them use AI-powered analysis to get investment ideas and build portfolios.
“Machine learning is evolving at an even quicker pace and financial institutions are one of the first adaptors,” Anthony Antenucci, vice president of global business development at Intelenet Global Services, recently said.
When Wall Street statisticians realized they could apply AI to investment trading applications, he explained, “they could effectively crunch millions upon millions of data points in real time and capture information that current statistical models couldn’t.”
Here are some ways companies around the world use AI for smarter trading.
Location: New Delhi, India
How it’s using AI in trading: Auquan’s algorithmic trading skills platform democratizes trading and helps finance companies “develop high-quality trading strategies and bridge the gap between data science and finance.” Consequently, its clients are able to translate human skills into trading profits.
Industry impact: Auquan was recently named to the Techstars London Class of 2018.
How it’s using AI in trading: Epoque’s fully automated AI trading has three “engines”: a “strategy engine” that observes and analyses potential trades; an “order engine” that creates orders and performs operational actions; and a “logical engine” that “governs active orders and continuously improves its own performance through machine learning.”
Location: Warsaw, Poland
How it’s using AI in trading: Sigmoidal is a consulting firm that offers end-to-end machine learning, data science, AI and software development for business — including the trading sector. In one case, its team of experts helped formulate an investment strategy by developing “an intelligent asset allocation system” that “predicted the expected return for every asset in a portfolio using deep learning.”
Location: San Francisco
How it’s using AI in trading: IBM-affiliated EquBot’s proprietary investment technology combines AI with an active exchange-traded fund (ETF). By gathering and processing data gleaned from various sources (news articles, social media postings, financial statements) around the world, the company systematizes the investment process to “build a cause-and-effect understanding of markets, companies and management.” EquBot’s mission is “to give everyone access to investment opportunities that artificial intelligence can uncover.”
Industry impact: EquBot recently launched the AI Powered International Equity ETF targeting opportunities in developed international markets outside the U.S.
How it’s using AI in trading: Kavout’s “K Score” is a product of its Kai intelligence platform that processes “vast and diverse data sets” and runs a variety of predictive models to come up with stock-ranking rating. With the help of AI, the company recommends daily top stocks using pattern recognition technology and a price forecasting engine. Its model portfolios are “based on vetted and established trading strategies, augmented with AI algorithms.”
Location: San Diego, Calif.
How it’s using AI in trading: Overnight, Trade Ideas’ AI-powered self-learning robo-trading platform “Holly” subjects dozens of investment algorithms to more than a million different trading scenarios “to arrive at a subset with the highest probability for alpha in the next market session.” Only those strategies with a success rate of 60% and above and a 2:1 profit factor are shared with traders the next day.
Industry impact: The company’s actionable intelligence considerably outperformed market benchmarks in the first quarter of 2018, returning 16% to the S&P’s -1.0%.
How it’s using AI in trading: Startup AITrading’s “trading ecosystem” combines AI and the trading community to increase earnings by scanning markets to locate optimal trading opportunities. Deals are done via blockchain-based smart contracts. All actions are logged on blockchain and cannot be changed.
Industry impact: The company recently announced a crowdfunding campaign to raise funds for its trading platform.
Imperative Execution Inc.
Location: Stamford, Conn.
How it’s using AI in trading: Comprised of experienced traders, analysts and engineers, Imperative Execution builds “efficient financial exchanges” with the help of its product IntelligentCross, which uses AI to optimize the trading of U.S. equities.
Industry impact: Hedge Fund chief Steve Cohen’s Point72 Ventures LLC recently became the first to invest in Imperative Execution.
How it’s using AI in trading: Infinite Alpha is an “AI-powered crypto-asset trading ecosystem for professional investors” that offers protection via advanced “authentication, encryption, hardware security modules and robust controls.” Using its intuitive dashboard interface, users can easily access account details, balances and transaction histories.
How it’s using AI in trading: Through its acquisition of Neurensic, Trading Technologies offers an “AI platform for identifying complex patterns of trading behavior at a vast scale, across multiple markets in near real-time.” Combining machine learning technology with high-speed, big data processing power, the company provides clients with “a continuous assessment of the compliance risk associated with complex trading behaviors.”
Industry impact: Chicago-based Neurensic was acquired by Trading Technologies in late 2017.
How it’s using AI in trading: WOA (which stands for War of Attrition) is an “algorithmic quantitative systematic trading system.” With the goal of boosting client profits via its “asymmetrical risk/reward management process,” WOA employs AI for real-time market analysis and is available for only a select group of users that include fund-to-fund, hedge funds, ultra-high net worth individuals and sovereign wealth funds.
How it’s using AI in trading: TurinTech is an AI-powered “algorithmic trading exchange” whose platform “combines code-free algorithm building and machine learning-based backtesting with state-of-the-art optimization services.” The company’s technology “automates the process of delivering repeatable profits to reduce the cost and investment of trading.”
Location: Johannesburg, South Africa
How it’s using AI in trading: Billed as “a fully autonomous system trading thousands of stocks simultaneously with no human intervention,” Techtrader’s fully automated trading program takes a human-like perspective on stocks “but with the cold discipline and infinite attention span of a machine.” The company claims that doing so “is analogous to having a thousand traders each focusing on a single stock.”
Sentient Investment Management
Location: San Francisco
How it’s using AI in trading: Sentient uses AI to develop quantitative trading and investment strategies. By combining “evolutionary intelligence technologies” with deep learning algorithms (among other things), the company’s “distributed” AI system continuously processes and learns from vast amounts of data in order to develop new investment strategies.
Industry impact: Sentient recently received $25 million in seed capital, doubling its assets.
Location: New York
How it’s using AI in trading: The brainchild of Goldman Sachs and Millennium partners hedge fund alums, Algoriz employs experts in quantitative trading, machine learning and capital markets to create trading technology for the financial services sector. Users can construct trading algorithms sans coding.
Looking Glass Investments
Location: Milwaukee, Wis.
How it’s using AI in trading: Looking Glass uses “proprietary analytics and big data to find alternative fixed-income investments in the marketplace loan industry.” Clients include family offices, institutional investors and accredited investors.
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