The New Workforce: The Impact of AI on Human Investors

The Impact of AI on Human Investors

Our intelligence is what makes us human, and AI is an extension of that quality.” – Yann LeCun


  • A growing fear in the financial sector is that robots will soon replace quantitative hedge fund managers and traders.
  • Potential uses for AI within the financial sector include ‘Algo-trading’ and portfolio management.
  • To date very few financial institutions are confident to grant full managerial control to a machine.
  • The I Know First Market Prediction System models and predicts the flow of money between the markets.

Source: pixabay

Artificial Intelligence is an increasingly common buzzword used, however few people truly understand its true meaning and how it is transforming our day-to-day life. This is the exciting next generation of computing. While traditional computers are able to efficiently perform and execute an algorithm, they are still limited to only performing tasks they have been pre-programmed to do. However, this poses serious limitations when there is an element of unpredictability involved.

In a recent I Know First article by Harry Chiang he highlights the different uses for AI these includes successfully understanding human speech and competing at a high level in strategic game systems. Other examples include self-driving cars, intelligent routing in networks, and interpreting complex data.

Self-Driving Car – Source: Flickr

Take for example reading handwriting to the human eye we can instantly recognise handwriting and distinguish between different letters even a simple circle can often be difficult for a computer to identify the difference between a badly drawn square and a circle. This extends to all handwritten letters and numbers. With new computing it not only takes into account the context but also learns with each correct recognition and eventually the accuracy and precision of the technology improves. Users of modern voice recognition technology such as Siri or Alexa will be familiar with the learning process the technology undergoes and will find that the more, they use this technology the better it becomes at recognising their voice.

The above picture is an example of how a computer could find confusion with the differences between a circle and a square. What artificial intelligence provides is that next level of smart computing allowing it to learn from past mistakes and improve on pattern recognition.

While AI traditionally takes advantage of historical data and uses it to learn it has one large advantage over humans: it can process, retain and recall large amounts of data. However, what is more difficult is connecting the dots in chaotic systems between related data and data that is of no relevance. Relevance is often a tricky subject often times its simple logic, something an AI can follow excellently, other times it is almost like predicting the future something even a human is unable to do.

Source: Pixabay

What is the potential use of AI within the Financial Sector?

Many hedge funds and asset management firms have recently turned to AI to assist with their wealth management and use it to provide predictive analytics and market forecasts. Bridgewater Associates has $150 billion in assets under management and recently started a new artificial intelligence unit led by David Ferruci. Ferruci previously led the development of IBM’s Watson. Similarly, Renaissance Technologies, which uses deep learning-based technology, claims to have returned +35% annualised over 20 years.

Another use is the rising use of ‘Algo-trading’ in past articles by I Know First, there are many at length articles that explain in depth what the new advanced AI algorithms are. In a recent article the history of algorithmic trading and its relationship with AI is explained. As the uses of AI grows more and more firms like I Know First utilise AI and deep learning to provide investment solutions and trading recommendations to forecast and predict stocks, shares ETFs and currency pairs that generally rely on analysing vast quantities of data. With modern AI and deep learning big data poses a solution rather than a problem to these algorithms.

A growing fear in the financial sector is that robots will soon replace quantitative hedge fund managers and traders. The Alan Turing Institute, headquartered in the British Library, believe the rise of the machines is not far off. “Some of the discretionary managers will go out of business,” said Dr Adrian Weller, programme director for AI at the institute. “Over time the algorithms are getting better. Humans are generally not progressing as quickly as the algorithms.”

However, to date very few financial institutions are confident to grant full managerial control to a machine. What does seem to be on the rise is the increasing number of tasks that are now being automated. Opimas, the financial services company, forecasts 90,000 jobs in asset management — almost a third of the worldwide total — will disappear by 2025 because of AI.

Growing Presence of Artificial Intelligence in Financial Sector

Source: Pexels

Artificial Intelligence (AI), was once the domain of fanciful science fiction books and films. But now the drive to eliminate human fallibility makes the technology stormily take the world across all industries, from self-driving cars to virtual assistants like Siri. Companies are significantly benefited from the cost saving from a variety of automated processes. Now programmers and data scientists are setting their sights on financial services. Applications for AI technologies exist across nearly the entire spectrum of business, from algorithmic stock trading applications, credit card fraud detection to auto investment advisors. According to Accenture (NYSE:ACN) analysis of data from CB Insights, a global venture-finance data and analytics firm, global investment in financial technology (Fintech) ventures rose 18% to US$27.4 billion and reached another all-time high in 2017, buoyed by a surge in funding for startups in the United States, United Kingdom and India.

Most quant funds are keen to stress they view AI as offering minimal deviation from their human-originated trading strategies. However, revolutionary FinTechs such as I Know First are offering new technology that will greatly improve performance capabilities of Hedge-funds and financial investment firms. I Know First provides daily market forecasts. These forecasts are driven by AI and machine learning. Data is consistently fed back into the algorithm enabling for more accurate and improved forecasts to be made and output.

A few years ago the suspicion about algorithms and machines was a lot higher than it is now,” said Gary Collier, chief technology officer of Man Group Alpha Technology. “There seems to be a lot of acceptance that algorithms help make better investment decisions than humans alone.”

While the fear of AI replacing humans is not an imminent threat the traditional tasks performed by humans will now longer require manual input and automation will pave the way for new roles and tasks. As the financial market steps out into the realm of AI it allows hedge funds and similar financial institutions to maximise their profitability and reduce the margin of uncertainty and error with the implementation and utilisation of artificial intelligence and machine learning.

The I Know First AI Algorithm

The system is a predictive stock forecast algorithm based on Artificial Intelligence and Machine Learning with elements of Artificial Neural Networks and Genetic Algorithms incorporated in it.

This means the algorithm is able to create, modify, and delete relationships between different financial assets. Based on the relationships and the latest market data, the algorithm calculates its forecasts. Since the algorithm learns from its previous forecasts and is continuously adapting the relationships, it adapts quickly to changing market situations.

The I Know First Market Prediction System models and predicts the flow of money between the markets. It separates the predictable information from any “random noise”. It then creates a model that projects the future trajectory of the given market in the multidimensional space of other markets.

The system outputs the predicted trend as a number, positive or negative, along with the wave chart that predicts how the waves will overlap the trend. This helps the trader decide which direction to trade, at what point to enter the trade, and when to exit.

In the recent S&P 500 evaluation report, we can see how I Know First algorithm outperforms the S&P 500 consistently over the last three years.


Further Related Articles:

Learn How To Strategize With The Algorithm To Optimize Gains And Mitigate Risk

Machine Learning Trading, Stock Market, and Chaos

Artificial Intelligence in Finance: AI is the New Electricity

5 AI Fintech Companies That You Should Know

AI In FinTech: On The Verge Of Revolution

Press Release: I Know First Is Expanding Asia Presence with Entrance Into Retail Client Space In Hong Kong and China