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Are there any risks associated with AI-based stock trading?

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Jarvis-Invest

Artificial Intelligence has found applications in different sectors, including the financial space. A decade back, it was hard to believe that Artificial Intelligence (AI) and Machine Learning (ML) can help investors in AI-based stock trading. How does AI help with stock trading? The idea is simple - an AI-based system analyzes millions of data pointers and executes trades at the optimal price. These systems can also analyze and forecast markets with greater accuracy and suggest trade efficiently, which mitigates risk and can deliver higher returns.

What is AI trading?

There are many AI-based investment advisors in India - some are using AI only as a support system, while others are 100% AI-driven. Before opting for AI stock management, you need to understand the term AI trading first. AI trading companies (or advisors) use various tools, such as algorithmic predictions and machine learning which makes stock trading easier for traders.

AI-based stock trading

Today, AI technology is so advanced that it can be used to predict stock market movements with a high degree of accuracy. AI-based stock trading is available to everyone, and you don't need supercomputers to make the most of AI in trading. 

AI systems consider a wide array of data sets, including real-time and historical data, to make predictions about future stock prices. Since an AI-driven system can process a large volume of data and do it in no time, it gives the advantage to traders using AI technology over traders using traditional analysis methods. For example, AI-based predictions can help you spot potential market-manipulated activities.

Risks associated with AI-based stock trading

Yes, AI-based systems can help traders execute successful trades. However, there is a catch to it. Not every AI system has the potential to beat the human trading system. The efficiency of the AI system will depend on the quality of data fed to the system for learning. Second, the volume of data also matters. For example, a system that was trained using three years of historical data will perform better than one trained using only 18 months of data. 

In short, AI learns from history and is only as good as the historical data it has used. Incorrect or faulty data can lead to misleading forecasts and analyses.

Next, the stock market is continuously evolving and changing. Therefore, AI must be updated to keep up with the latest development and changes.

Conclusion

Stock traders cannot randomly start using AI-based systems and can expect to benefit from them. You need to invest some time checking the history of AI-based trading platforms and evaluating their performance. 

Despite the risks/limitations, AI has the potential to transform the stock market and help traders execute better traders. We only have limited AI-based investment advisors in India, and you must evaluate them on performance before you use them for trading (or investing).



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