The robots are coming, and for the investment sector, their arrival couldn’t come at a better time.
The march of artificial intelligence (AI) into the workplace can be seen in every facet of the corporate world, from the production line to the financial services space. Analytics-driven algorithms are assisting with everything from insurance claims adjusting to currency trading. Banks and brokers are benefitting from more informed decision-making, improved analysis and predictions, as well as the ability to trade at machine speed and in greater volume.
However, alongside better analytics and greater capacity, AI and cognitive reasoning can deliver something equally important to the financial sector – transparency.
Financial trading in the major economic markets has undergone wave upon wave of innovation and trade. The ‘big bang’ of the 80s that saw the age of open outcry trading in pits on the trading floor come to an end, replaced by computers and phones. Technology and connectivity advancements since then have refined the electronic trading process further. Yet, amid the white heat of the technological revolution, one relic of the financial market has remained in the form of the interdealer broker.
Legal, decent, honest and truthful
An uncomfortable reality of the Libor scandal was the pivotal role played in it by interdealer brokers. As the middlemen who line up buyers and sellers of securities for banks, a group of interdealer brokers emerged as the key enablers of Libor rate-rigging. The firms involved were fined a total of $2.6 billion for rigging global interest rates. It’s a major reason why interdealer broking needs to be reformed and why it needs a new layer of transparency that AI and blockchain can deliver.
[clickToTweet tweet=”Libor showed us the risk to the marketplace when brokers operate solely for themselves” quote=”Libor showed us the risk to the marketplace when brokers operate solely for themselves”]
Libor showed us the risk to the marketplace when brokers operate solely for themselves, instead of being in business for their customers and for the betterment of the market. It is one of the major reasons why the interdealer broking market is a perfect candidate for the implementation of AI as a reforming measure.
One of the key benefits of an AI broker underpinned by a blockchain transaction platform is the elimination of errors, abuse and criminality that plagues financial markets that rely on human brokers.
By harnesses the power of AI to offer users a virtual broker: the market benefits from having informed, data-driven traders that are not only 100 percent trustworthy, but also completely independent and totally auditable. Pair this with a platform that can record every transaction and market movement, including when those transactions took place, and suddenly the interdealer broking market quickly becomes a marketplace with manipulative trading practices can no longer be hidden from view, and where human traders and automated brokers can operate side-by-side and interoperate.
Engaging with AI using a cognitive chatbot
AI chatbot interfaces in banking are emerging quickly. Startups such as Cleo and Revolut already use AI chatbots for customer service, but their use need not stop at ordering a new debit card.
A virtual trader is useless without an interface to instruct and engage it. Cognitive reasoning platforms such as Rainbird allow AI technologies to make human-like decisions based on data and knowledge maps and escalate more complex calls for human intervention. Such a structure ensures a level of certainty and measurable decision-making process with a clear audit trail of what trades were executed and why the decision was made. Rather than being at the mercy of variables of human traders and their own perception of whether a risk is worth taking, an organisation or a customer can tune or cap their AI trader and impose hard limits on how much risk they want to entertain via the AI for a consistent outcome.
By using a chatbot interface, users can interact with it using conversational language and logical questions. In the financial trading space. this removes many of the cultural obstacles to using a non-human trader. It also makes the AI behind it more of a resource, allowing users to ask questions, solicit advice and to provide the bot with more information when it doesn’t have all the background it needs to make a call on a trade.
Broadening the marketplace with cryptocurrencies
The cryptocurrency space is an opportunity for the marketplace. Such is the pace of change in values, as well as new investment currencies emerging on a daily basis, speed is of the essence. To maximise the opportunity, traders need to move faster than humans can. High-frequency trading (HFT) is not new, but being able to interact with an HFT algorithm in real-time to enrich and develop the trading strategy is a change to the status quo. It is also essential in order to fully exploit the opportunities of cryptocurrencies alongside physical fiat currencies.
The growing fragmentation of crypto markets is a problematic thing – a stumbling block to those operating in the marketplace. An AI trader can effectively work across these fragmented environments – wallets, exchanges, ICOs, private offerings etc. You can trade safely and effortlessly, with full control of the actions being carried out on your behalf across all crypto and physical currency repositories. Using an AI execution chatbot for trading – with optional Alexa-style voice recognition system – information can be aggregated from a much wider range of sources than a human trader can realistically keep in their head, while still retaining the experience of real-time interaction and thought process.
The key to decentralised trading isn’t actually a new cryptocurrency asset but an effective cryptocurrency broker that can move at the same speed as the currencies.
The key to decentralised trading isn’t actually a new cryptocurrency asset but an effective cryptocurrency broker that can move at the same speed as the currencies. By simplifying and opening markets to the widest possible range of people, the combination of AI, chatbots and a fully transparent journaling platform for trades deliver new opportunities for the financial sector while continuing the automation and technology push that began with the big bang in the 80s.
Jos Evans is an experienced Trader and Broker with a ten-year history of succeeding in Finance. He served as Chief Executive Officer and Founder of Red Ops Ltd.
During his tenure, he brokered over 90% of cleared iron ore option market volumes, including the first trades on both NOS and CME. Jos sold Red Ops to SSY Futures Ltd and served as Head of Ferrous Options there.
He also worked as Senior Commodity Broker at Market Securities (A KYTE GROUP COMPANY). These are just some of the successful areas he has worked on, and now he is working on launching his next venture, AiX.