How Robots And Software Are Replacing Stock Traders

Stock traders have been an integral part of the stock exchange system for centuries. Many trades require subjective decisions that can only be made by a human, so people can often calculate the actual value of a stock with greater speed and efficiency than a computer. Therefore, despite the emergence of modern computer technologies, the stock trading profession has managed to remain relevant.

In recent years, financial experts believed that high-tech future computers would never be able to match a human’s subjective decision-making capabilities. However, new advancements in artificial intelligence are transforming the value of human stock traders–and computers are now projected to exceed the capabilities of human traders in the coming years.

The stock market is drawing ever closer to swapping human stock traders for robots and software. When this change happens, it will have huge implications for everyone, experienced investors and new stock traders alike. It could change your entire financial future.

How Automated Software is Taking Over The Stock Market

Automated software has been used for decades to help stock traders make better decisions. Primitive automated software gave traders tools to calculate the value of stocks, place trades without face-to-face interactions, and respond to price fluctuations faster. As computers became more advanced, applications were developed to help the computer systems trade on their own. However, human input was still required to make trades; computers caused errors and made poor decisions.

When automated high-frequency trading businesses emerged in the 21st century, they controlled only a small minority of total trade volume. Nevertheless, automated high-frequency trading became significant because it involves computers buying and selling without human input.

Now, automated trading has finally eclipsed human traders in total trade volume, and this trend will only continue. Though today’s robotic stock traders are still reliant on human intervention to some degree, the day is quickly approaching when these virtual traders will master the task on their own.

The emergence of artificial intelligence technologies will enable automated software for major trades. As computers become capable of making more significant trading decisions, the utility of human stock traders will decline. Stock traders will be adversely affected by the emergence of artificial intelligence.

Financial experts are projecting that investment firms will increasingly act as technology companies as they compete for better trading algorithms and intellectual properties. The degree to which human traders will be needed in the decades ahead remains unclear.

The Dangers of Eliminating Human Stock Traders

One of the major barriers to fully automated trading is the risk of computers making bad trades that lead to astronomical losses. A simple technological glitch could cause an investment firm to suffer losses that could lead to bankruptcy in mere seconds.

Computers have already made faulty trades and caused significant losses, such as the Flash Crash of 2010 that brought the entire stock market down by 10 percent in a 30 minutes. Since then, both regulators and financial institutions have been skeptical of any strategy that involves computers making significant investment decisions without human input.

Automated Stock Trading Software vs. Stock Traders

In the existing business environment, many financial professionals are comparing the efficiency of automated stock trading software and human traders for a wide range of trading activities. Additionally, technology companies have developed thousands of products designed to help investment firms increase the profitability of their trades.

The reality is that automated stock trading software varies depending on the nature of a firm’s investment activities. Companies that seek to exploit minor price differences quickly are likely to need automated stock trading software to compete effectively. In contrast, investment firms that focus on long-term fundamentals are unlikely to realize significant benefits from automated trading.

In addition to advanced institutional trading software, there are also programs available that help retail investors make better decisions. However, high latency and limited processing power reduce a retail investor’s ability to compete against institutional investors in the field of automation.

The efficacy of day trading has declined in recent years due to proprietary high-frequency trading software developed for institutional investors, and this trend will likely continue. Individual investors should, therefore, seek to exploit opportunities that require human reasoning and avoid attempting to compete with institutional investors that favor automated trading technology.

How to Decide If You Need to Switch

It is infeasible for retail investors to compete in the high-frequency markets, but technology can still help traders improve the quality of their investment decisions. You should incorporate technology into your decision-making process to discover investment opportunities. You should also make use of software to search through a comprehensive database so you can keep track of emerging changes in the general market and specific industries.

If you aren’t utilizing technology to improve your decision-making process, you’re placing yourself at a significant disadvantage relative to leading traders. Automated software can help individual stock traders remain relevant in today’s markets, and it is almost impossible for you to compete without this technology.