Algorithms and automated systems have been used for investment for quite some time. While these could be considered forms of artificial intelligence, these older systems were unable to act with complete independence. They still relied on human traders. The systems were designed to be deployed by humans to perform very specific tasks or to exploit different types of opportunities.
With newer technologies like machine learning and neural networks, as well as the rise of voice recognition technology, AI is really starting to come into its own as an investment tool. These newer, smarter systems can be trained to work with little to no oversight from a human trader and are able to operate 24 hours a day.
Obviously, a disruptive technology like this is going to have a major impact on the world of finance. This post will look at some of the ways in which AI is changing the future of asset management.
Lower Management Costs
Artificial intelligence is now capable of handling a number of high cost applications in portfolio management. Tasks like risk management and time series predictions would traditionally be delegated to highly skilled human traders.
Now you have AI systems that can handle many of these management tasks which should lower costs. An AI-based manager can be programmed to analyze financial data and effectively control a diverse range of assets. These portfolios can include everything from equities and bonds to commodities, real estate, cryptocurrencies, and precious metals.
In the past, the applications of AI in investing were dependent upon human traders. The human trader would identify an opportunity and then deploy a tool that could help them take advantage of it.
With the newer AI-based trading, the system can identify opportunities that a human trader may never be able to understand. With so much data available, and a better ability to process that data and make connections, the AI systems of the future will be able to outpace their human counterparts. Theyre also likely to make fewer mistakes. In addition to that, the AI removes more of the uncertainty from investing.
Financial markets are often subject to the whims of market sentiment. If an investor can find new or more accurate insights into investor sentiment, they have a new data point that can inform their strategy.
With the social media platforms like Facebook, investors have access to new data that can help predict investor sentiment. By using techniques like social media mining, an AI trading system can find new insights into things like investor sentiment, consumer sentiment, and brand value.
Balancing Risk and Reward
The balance of risk and reward is an important part of portfolio management. Low risks dont offer much of a reward, and high risks come with the potential for significant losses. With the AI systems of the future, risk and reward can be integrated directly into the system. You will be able to manage your risk tolerance simply by changing a value in the program, allowing you to play much more complex strategies without having worry about balancing portfolio risk.