The Advantages of AI Technologies in Financial Trading

According to one financial industry expert, artificial intelligence (AI) is “to trading what fire was to the cavemen”. In simpler terms, AI is a significant game-changer for the global financial marketplace, particularly developing economies such as the UAE.

The latter point is borne out by the figures, with the wider influence of AI and its potential applications expected to add an estimated $320 billion to the burgeoning Middle East economy by 2030.

In this post, we’ll explore the concept of AI as a financial trading tool further, while appraising the primary benefits of this practice.

Artificial Intelligence

Why is AI so Imperative to Contemporary Trading?

For years now, it has been observed that AI is continuing to shape the future of stock and forex trading, with forex robots and expert advisors (EAs) utilising the technology to analyse millions of separate data points before executing trades at an optimal price and point in time.

What’s more, AI makes it possible to draw and analyse data from broad and relatively unstructured sources (such as social media), enabling users to predict future trends with greater accuracy and mitigate risk while pursuing optimal returns.

Machine learning plays a pivotal role in the application of AI within the market, as this can be deployed to create more intuitive trading algorithms that can adapt and adjust in real-time.

This innovation also helps to fundamentally increase the number of markets and indicators that can be tracked in real-time, highlighting a larger number of opportunities to achieve optimal profitability.

To put this into context, let’s look at how AI has positively impacted trading platforms such as the MetaTrader 4 (MT4). This uniquely programmed platform, which was launched in 2005 and always blazed a trail for others to follow in the forex market, utilises advanced expert advisors (EAs) to clients, with these entities serving as forex robots that multiply opportunities through algorithmic trading.

More specifically, these EAs leverage AI to create a simplistic but effective imitation of the neural network, to produce insightful buy and sell signals while simultaneously trailing stop losses.

What are the Main Benefits of AI in Financial Trading?

There’s no doubt that tools such as the MT4 have helped to popularise AI and algorithmic trading across the globe, while removing historical barriers to entry in developing economies such as the Middle East and UAE.

Referencing the MT4 also leads us on to another key benefit of leveraging AI in financial trading, namely the ability to backtest trading strategies.

In simple terms, backtesting applies trading rules to historical market data, in a bid to determine the viability of a particular idea or strategy. This is critical to the formation of any successful trading strategy (especially in markets such as forex), as all rules need to be absolute in the case of algorithmic trades.

AI also builds on the existing concept of automated trading by further minimising human input and emotions, negating the temptation to react emotionally to sudden market shifts or chase sudden, margin-based losses.

This also helps to preserve a sense of discipline and focus amongst traders, optimising their chances of success over a sustained period of time.