The International Monetary Fund (IMF) have published a piece that is interesting. On the increasing role AI will play in trading.
- Hedge funds, investment banks, and others have been using quantitative trading strategies for decades. Automated trading algorithms have helped markets move faster and digest large trades more efficiently in major asset classes such as US equities. But they have also contributed to “flash crash” events when market prices have swung wildly in very short periods of time—such as in May 2010 when US stock prices collapsed only to rebound minutes later—and there are fears they could destabilize markets in times of severe stress and uncertainty. Artificial intelligence, through its ability to almost instantly process large amounts of data and even text for use by traders, is poised to take these kinds of changes to another level.
Worth a read, here is the link. But, in summary:
- IMF's Global Financial Stability Report examines AI adoption in financial markets
- AI expected to boost market efficiency but could increase opacity and manipulation risks
- Patent filings show surge in AI-related algorithmic trading tech since 2017
- AI-driven ETFs show higher turnover, potentially deepening liquidity but also herd behavior
- Markets may react faster to news, e.g., quicker price moves after Fed minutes release
- Nonbanks (hedge funds, prop trading firms) have advantage in AI adoption
- Regulators urged to enhance oversight, especially of nonbanks
- New volatility safeguards may be needed to prevent AI-driven "flash crashes"
