Artificial intelligence is the hottest topic in any industry. The rapid advancement of machine learning and the emergence of new exciting technologies will change the way we live. As a byproduct of this enormous global transformation, trading financial assets will also be greatly affected by the introduction of expert AI systems to the industry.
The sector of trading automation is already changing with all providers racing toward leadership positions in the rapidly emerging AI trading bot sector. Nevertheless, some experts think that there are many challenges ahead that will significantly slow down the process of implementing artificial intelligence in the world of automated trading. Are they right?
What is artificial intelligence?
Some people may believe that when experts are talking about AI they mean the singularity as pictured in many sci-fi stories. A godlike AI system that rules over the world and surpasses humans within seconds after connecting to the internet. However, it is not the case. The AI we are discussing is represented by relatively simple expert systems that specialize in something very specific.
In our case, expert AI systems are focused on analyzing markets, balancing portfolios, predicting the behavior of traders, and so on. These systems are often created via machine learning, a complicated process, resource-intensive, and time consuming process during which a system uses as much data as possible to train for outcomes defined by developers.
These systems can easily outperform trained human doctors when it comes to diagnosing cancer with MRI scans. They can do every single specific task better than a human, but will never be able to combine all this knowledge to act autonomously.
Here are some things that AI brings to the table when crypto trading machine learning systems use the market data to train:
- Real-time monitoring. Humans can look at screens and even a couple at a time. However, they will never see as much data simultaneously as an expert system. The sheer volume of information that such systems can analyze instantly and present in various forms of outputs is just unimaginable for people.
- Analyzing historical data. We already use the price history to back-test various automated trading systems or to check whether a technical analysis approach yields desirable results. Imagine a system that can easily iterate hundreds of times instantly and come up with the most adequate trading method!
- Improving automation. Expert AI systems can use traditional trading bots as extensions to quickly place orders when needed to adjust a portfolio. The combination of a contemporary ATS and an expert AI system will surely produce incredible results when used to replicate approaches like statistical arbitrage.
Since so many companies are already heavily invested in the development of AI trading bots for crypto, they will be shaping the crypto market sooner or later regardless of whether we want it. This inevitability is a consequence of intense competition between various automation providers including WunderTrading.
Some retail traders are very excited about the future where AI-assisted trading is a thing. However, many experts raise concerns about the effects of using artificial intelligence without any oversight and control.
The challenges of implementing machine learning in crypto trading
Many have heard about the open letter signed by many public figures and scientists (most notably, by Elon Musk) that asks the tech world and governments around the world to put the AI development craze on a pause. The plea landed on deaf ears. It is impossible to stop the progress when so many parties are interested in beating everyone else to the finish line.
Another big overall issue is the infamous “prisoner’s dilemma”. Imagine a country that decides to comply with the demands from scientists and halts all AI development. As other countries won’t be willing to cooperate, the country without any active AI development will fall behind. No one will stop because no one trusts that other participants of the race will stop too.
There is no way we can sort out this issue. We are just waiting until someone develops the “atomic bomb” that overshadows everything else.
Many people have concerns with the implementation of AI in the cryptocurrency market (or any other financial market) due to several reasons:
- The technical complexity may be way too stressful for the existing infrastructure. The amount of data required to train systems and the volume of calculations necessary to run multiple instances of these systems may be too much for many vendors to keep prices accessible allowing only a handful of rich individuals to trade with machine learning crypto trading systems!
- The lack of humanity. It is true that one of the biggest advantages that bots have over humans is that they do not have our emotions and can follow through on their decisions regardless of unrelated conditions like stress, fear, or doubt. On the other hand, the lack of any human judgment in the system may cause other unforeseen issues.
- What about regulations? If any developer comes up with a truly outstanding AI system that systematically beats the market, it will be possible to literally “game” the whole ecosystem making infinite profits and controlling the whole domain. Who will step in to regulate and protect other participants of the market?
- Issues with the quality of data. Training must be done on historical information and other sources of data that produce clean results. For example, if a market data provider has too much HFT market making, the training process will be completely ruined as resulting AI systems will be incapable of trading under normal conditions. We still have issues with sourcing high-quality data to train artificial intelligence.
What the future holds
AI will rule in environments where HFT (high frequency trading) is possible with thousands of simultaneous participants. Electronic markets (for example, those trading derivatives) will be first to experience the arrival of expert trading systems. An AI options trading bot that can outperform traders more often than not will not cause any panic at first, but with more retail traders using it, the market will turn into chaos.
Various automation platforms see the future of AI-assisted trading very differently which will also lead to many clashes between various AI systems. We do not know the consequences of such battles. The only thing is vividly evident — you need to be an early adopter of these systems to benefit from them. First people who will use efficient AI crypto trading bots will make all the money!
