How will AI change the retail stock trading industry?

Retail stock trading refers to the buying and selling of company shares by individual investors using their own money. The retail sector is a crucial part of the financial markets. 

It should be mentioned that retail stock trading has gained a significant role recently with the democratization of technology. Barriers for entering the markets are lowering each year, there are less initial deposit requirements, and the account opening
process is generally very fast. 

Advancements in personal computers and the financial industry have destroyed floor trading and now, traders from across the globe can invest and speculate on stock prices from their bedrooms. However, advancements in technology are projected to continue.
In particular, advancements in Artificial Intelligence (AI) are projected to have the largest effect on

retail traders. 

AI is heavily used in stock trading even today. Mainly by institutional traders, as large institutions have all the resources to develop, test, upgrade, and monitor AI models to trade stocks profitable. The currency uses of AI are:

  • Machine learning: Machine learning algorithms are heavily used in financial trading. These models help traders in predictive modeling, regression analysis, and classification. 

  • Data processing: AI trading systems process huge amounts of data very quickly and quickly make trading decisions. Which is why financial markets are considered to be highly efficient. 

  • Pattern recognition: AI systems are perfect at recognizing patterns quickly and efficiently. Pattern recognition enables traders to join trades early.

  • Risk management: AI is already helping traders in portfolio optimization. 

  • Deep learning: deep learning algorithms use historic market data to find patterns that tend to repeat. Traders use the information to find new future trading opportunities.

Benefits and risks of AI in Retail Stock Trading

AI systems streamline the decision making process by quickly analyzing extensively amounts of information, identifying trading patterns, gauging market sentiment, and position sizing. In addition to AI, retail traders can use third party pages such as
Trade Brains, to improve their analysis. 

However, there are also potential drawbacks of using AI in trading that needs to be discussed. To begin with, developing and upgrading AI trading models is not cheap and most retail traders cannot compete against large institutions that dedicate substantial
amounts of investments to integrate AI into their trading systems.

AI models that participate in financial markets are pretty developed even today. Which in turn makes trading profitably highly challenging for regular retail traders that do not use them. If trading algorithms become even more advanced in the future, many
retail traders might be pushed to find another profession. 

A couple of decades ago, trading stocks was conducted on trading floors. However, as modern computers made everything electronic and easily accessible for most people around the world, market conditions changed. Many floor traders lost their competitive
edge and left the profession as they were faced with completely different financial markets. Today, the majority of trading is done using robots. Especially when it comes to high frequency trading and arbitrage. High frequency trading (HFT) is a type of trading
strategy that involves executing a large number of orders at extremely high execution speeds. Arbitrage is a trading strategy that involves participating in various markets simultaneously and exploring small differences. In the future, manual

retail trading can become an unprofitable endeavor. 

Comparin AI to human trader

There are certain advantages and disadvantages of trading manually and trading using trading robots. Which is why institutions that utilize AI in their analysis and trade execution, often couple AI with professional traders. Both AI and human traders work
together to increase profits and minimize their risks. 

Processing speed and data analysis

AI based trading algorithms are incredibly fast and precise. They can process vast amounts of data in milliseconds and execute orders flawlessly. On the other hand, human traders have zero chance to compete with AI in high frequency trading. Modern trading
algorithms can analyze the markets and read financial news really fast. Humans cannot match their performance. 

Emotions and stamina

Robots do not take vacations, get sick, or feel lazy. In addition, trading algorithms AI have no human emotions such as greed, fear of playing an order, hope, and desire to revenge trade. 

Intuition and creativity

Current version of AI lacks human level of intuition and creativity. They do as they are programmed, however, advancements in AI technology can improve this aspect too in the future. Robots fail to see the big picture, which is why AI is coupled with human
traders when it comes to making investment decisions at financial institutions. 


To sum it all up, modern trading robots play an important role in stock trading. More trades are done by robots today than by human traders. While AI has many advantages over humans such as speed, precision, and lack of emotions. Humans have intuition and
creativity that gives us competitive advantage. However, this may change and new, improved AI based algorithms might replace humans. If that happens, many retail traders might leave the industry or invest in trading algorithms instead. The only thing that’s
constant is that the financial world keeps changing. 

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This post originally appeared on TechToday.