Connect with us

Top 10

AVOIDING THE PITFALLS OF AI IN POSITIONAL TRADING

By Pan Yiannakou, CEO of Swarm Technology

 

Artificial Intelligence (AI) has advanced exponentially in recent years. It is widely regarded as a must-have tool to help traders distil vast sets of data to make the most profitable decisions quickly, but how does this work when taking longer term positions? Chief Executive of Swarm Technologies, Pan Yiannakou, explores the traps to watch out for when deploying AI in slower, positional trading.

Once a decision has been made to take a position in a market, the initiator must quickly consider a vast array of options to achieve the most profitable outcome – the exact timing; execution methodology; instrument; location and/or intermediary, to name just a few.

Take the decision to buy gold, for example. A trade can be executed immediately, after a few seconds, a few minutes or a few hours. A trader can either ‘lift the offer’ or ‘sit on the bid’; they can set a price target (below) or set a price trigger (above). They could also wait for some other event to trigger the trade. A trade could be made in the cash market, futures, options, as a contract for difference (CFD), or through an exchange-traded fund (ETF). The trader can conduct their business on an exchange, through a broker or directly with a counterparty.

Without restrictions, there are more than a million combinations of ways to gain a long exposure in gold. To add another layer of complexity, these variations are not static and anything from updated broker fees to shifting liquidity to changing counterparties has the potential to exact a significant cost impact.

In an environment where speed is critical and the variations are so vast and constantly moving, the case for deploying AI to solve this data-rich, complex, multi-dimensional problems is clear: AI is powerful enough that not only can it perform well in a dynamic, complex environment, it can also identify genuine opportunities hidden in the data that humans could never recognise.

However, high-frequency trading also has its limitations, particularly issues with liquidity. Sometimes, it is not possible to put to work all the funds required by participants in short term trades. The alternative is slower trading: taking positions that run for hours, days, weeks or longer. Berkshire Hathaway has famously held Wells Fargo, Coca-Cola and American Express stocks for over 25 years. But slower, positional trading presents a particular set of challenges for AI which could immediately and directly hit profitability.

 

Weaknesses of AI

  1. Biased data

AI is designed to identify biases, and to adapt to new ones. If historical data contains a bias that is suddenly no longer valid, that can result in poor decisions.  Slow trading limits the speed at which AI can adapt. If there is a chaotic shock that changes the bias, damage can be difficult to avoid. Consider Covid-19’s impact on global financial markets. There was the initial reaction, which led to an almost instantaneous shift in bias across all asset classes. By the time AI systems pick up the switch in bias, the damage has been done.

  1. New price action

AI works well when trained on large amounts of historic data, or when sufficient new data is being  generated quickly enough. When markets move in a way they never have done before, there is no historic data for AI to base decisions on. Some events are so rare – like the subprime crisis of 2007-08 – that there may not be enough examples in the past.

  1. Random clusters

AI is very efficient at finding patterns in large amounts of data. But this can be a weakness. Often, large amounts of numeric data such as price contain random patterns – ‘ghosts’ in the data, or random clusters as they are known. There is a simple test to identify this problem: present an AI trading system with a series of genuinely random prices. Will it find patterns and generate trading signals? The answer is usually ‘yes’. AI is so good at finding patterns, it will find random patterns too. Executing trades based on patterns that do not contain a genuine bias will cause eventual losses due to trading costs.

  1. Feedback

There is a strong feedback loop that degrades the value of patterns that are easily identified by AI. Consider a specific event that leads to a price gain of 5 per cent in a particular market, for example. If that exact same event occurs in the exact same circumstances again, the participants will all know that it led to a 5 per cent rally the previous time. When the pattern repeats, sellers are likely to sell before the 5 per cent target is hit, not wishing to be the last out. Even with exactly the same trigger and exactly the same starting conditions, the market would behave differently. The more participants that identify the same opportunity, the less effective that opportunity is.

 

Trade like an ant!

AI trading solutions do not have to be limited to fast trade execution. There are ways of using AI that avoid the pitfalls listed above. Swarm Technology, for example, uses the natural principles of swarm intelligence in its AI solution; this is a form of biomimicry. Swarm does not use AI for pattern recognition or to aid trade execution. It generates a Swarm Matrix, that shares information between all the markets and the systems applied to those markets; in a similar way to that of ants in a colony, who share information and adapt their behaviour accordingly.

While AI does have its drawbacks in slower, positional trading, it is not impossible to overcome the pitfalls.

 

Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Finance

WHAT’S NEXT? PAYMENT TRENDS IN 2021

Philip McHugh, CEO at Paysafe

 

Undoubtedly COVID-19 is going to continue having an impact on us all at least for the next few months and maybe all of this year, but there are still reasons to be optimistic. The industry continues to evolve quickly, and that in mind, here’s five of our predictions to watch out for in payments in 2021:

 

1. New consumers to online change the digital payments landscape

As more consumers headed online during the first wave of COVID-19, businesses noticed that their customers were also paying differently. Three quarters (76%) of the businesses we recently asked for our Lost in Transaction research report series said that consumers were using different payment methods during the pandemic, with the increased use of digital wallets being the most common. Having more customers that were new to eCommerce, and customers now shopping regularly with businesses that they were not comfortable sharing their financial details with, were key reasons for this.

Consumers confirmed this was true. When we asked in April, 18% of consumers told us they shopped online for the first time during the pandemic. With 38% of consumers telling us they are planning to shop online more even when COVID-19 is no longer a factor in their lives, we should see this shift to alternative payments continue.

 

2. SCA will drive mass adoption of biometric authentication 

Perhaps the first factor to shake up the payments industry in 2021 is going to have the greatest impact of any trend we will see in the coming year. That is because, after a series of extensions, the deadline for PSD2 Strong Customer Authentication is fast approaching. From December 31 2020 any transaction that isn’t verified by multi-factor authentication will be automatically declined.

One of the inevitable consequences of this is going to be a huge increase in the use of biometrics to verify payments. With the growth of mCommerce that we have seen before and during COVID-19, it seems very likely this will accelerate beyond predictions made at the initial SCA deadline in 2019. Juniper Research has already predicted that biometrics will be used for more than 18 billion transactions in 2021, with a value exceeding $210 billion in 2021.

 

3. A renewed focus on 5G

The importance of 5G and the growth of the IOT was another prediction we made for 2020. But while the impact of the pandemic has been to accelerate many of the trends we expected to see, perhaps one area where the pandemic has actually slowed adoption is the growth of 5G. With consumers spending so much time at home, appetite for personal 5G-enabled devices has been limited.

But at the same time, the need for the in-store shopping experience to be as frictionless as possible is now more important than ever. Almost half (46%) of businesses told us that they had lost sales in 2020 because their checkout times were too slow. So the use of 5G technology to overhaul the checkout will be back at the top of retailers’ agendas.

Almost half (47%) of stores told us that 5G will mean the end of the traditional checkout, and more than half (53%) believe that Amazon-Go style frictionless checkouts are the future of retail. Omnichannel experiences where consumers shop in a store and then pay via a digital checkout on a smartphone app are also on businesses’ radars.

 

4. A surge in subscription models

Almost one fifth (18%) of stores told us that they had launched a subscription services during the pandemic, and this is not only a result of business need but also customer demand. Overall, 27% of consumers told us that they were already planning to increase the number of subscriptions they had in the future, and this rose to 37% for consumers aged 18-34.

The growth will not be limited to digital either. Pret A Manger recently launched the first in-store coffee subscription service in the UK, and we expect to see similar models populating malls and independent stores soon.

Also, only the initial purchase of a subscription is subject to PSD2 multi-factor authentication. So for some businesses, launching a subscription service may be a way to reduce friction in the online checkout.

 

5. AI and machine learning as the cornerstone of fraud prevention

We’ve known about the importance of artificial intelligence (AI) and machine learning to financial services for years, but in many cases the industry has been slow to implement the technology. With the sophistication of financial crime increasing, and the growing concerns of consumers of being a victim of fraud, it is no surprise that adoption is now accelerating rapidly.

Banks have currently spent as much as $217bn on AI applications already, and in 2021 AI and machine learning based systems will be the standard in fraud prevention.

 

Continue Reading

Top 10

THE TOP 5 CRYPTO EXCHANGES IN THE WORLD YOU SHOULD KNOW ABOUT

Introduction

Crypto Exchange is a very important part of the Cryptocurrency EcoSystem. Crypto exchanges are the platform where transactions take place. You can also purchase Bitcoins in crypto exchanges.

It is a marketplace in the digital sphere that allows traders to purchase and sell Bitcoins. Do note that fiat currencies and altcoins can also be used in crypto exchanges. Since you have clicked on the link to this blog, there is a high chance you are a Bitcoin investor, or you are someone who likes to keep a keen eye on the crypto space.

And why should you not? Given all the buzz that cryptos are making in the financial markets. Bitcoin is the most famous cryptos, so I will be talking only about bitcoins in this blog for the sake of convenience.

 

Crypto Exchanges 101

A Crypto Exchange’s primary objective is to act as a broker and bring a buyer and seller to one place. It is pretty much like a traditional stock exchange; the only difference is that everything related to crypto exchanges happens digitally.

However, the process is not that different. On Crypto exchanges, traders have the option to sell and buy Bitcoins after inputting a value or order. When a trader selects the market value, the crypto scans the best market value available for the Bitcoins and presents it to the trader. Visit daily profit to start investing.

In order for a trader to transact in bitcoin, he needs to get himself signed up with the exchange platform. And then go through the various amounts of verification procedures. Once the trader has successfully verified his identity. He can start trading. But before that, he needs to transfer his fiat currencies to Bitcoins, and only after that, he can buy Bitcoins.

The currency exchange methods vary from exchanges to exchanges. Some allow users to transfer it via wiring through the bank; some well-established exchanges allow a direct transfer from the bank. Some allow the use of credit and debit cards.

 

Features of a Crypto Exchange

Crypto Exchanges have a lot of features that will ease up your transaction process.

  • Crypto Exchanges are decentralized – Decentralised means it operates without any governing body. There are no intermediaries in between. It offers peer to peer trading without having to show an account of your spending to the regulatory body.
  • Low Processing Fees – As crypto exchanges are decentralized, it is a peer to peer connection.

 

The Top 5 Crypto Exchanges In The World You Should Know About

There are more than a thousand crypto exchanges; trying them out one by one will take a lifetime. So as a crypto investor, I have personally selected the top five most popular crypto exchanges that you ought to know about.

1.    Gemini

The most widely used Crypto exchange on the face of the Earth is Gemini. It is perfect for all the major cryptocurrencies, but when it comes to Bitcoins. The only little drawback that I find in Gemini is that it asks for way too much personal information.

2.    Etoro

Etoro is more of a financial trading service than an actual crypto exchange, but it is worth talking about nonetheless. Crypto investors hold this app in high regard; it has a very good reputation. It has very high processing fees, which may annoy some traders.

3.    Kraken

When it comes to security, none can match Kraken. Apart from that, it has a very big user base. And it also charges very low transaction fees. A handful of traders do not like Kraken as it does not offer the best customer support services.

4.    Binance

Unless you had been living a rock, you must know Binance. Binance is the go-to crypto exchange. You get to see the ads of the Binance app over the Internet a lot. Binance gives you the added advantage of trading huge amounts of cryptos in a single time. Binance is only meant for experienced traders. It is not recommended for newbies.

5.    Coinmama 

Coinmama offers very strong security. The UI is user friendly. The best part is the customer support. I personally like Binance the most because it takes a step further and makes sure that proper security measures are implemented and add to that its classy user interface.

Many traders may not like Coinmama as the significant-high processing fees.

 

Final Words

There you go, there was the list of top 5 crypto exchanges. Please invest your money at your own risk. You should have a very strong knowledge of the crypto market before investing. Otherwise, you may face huge losses.

 

Continue Reading

Magazine

Trending

Banking1 day ago

WHY AGILE, SCALABLE DATA MANAGEMENT IS KEY TO DIGITAL BANKING

By Jason Hand, Global Account Executive – Enterprise Sales, Commvault   Back at the start of 2019, before we’d ever...

Wealth Management2 days ago

WHAT LIFESTYLE DO YOU WANT IN RETIREMENT?

By Jaco Prinsloo, Certified financial planner, Alexander Forbes Financial Planning Consultants   The answer to this question will be different...

News2 days ago

BRICKENDON STRENGTHENS SENIOR LEADERSHIP TEAM, PROPELLING FURTHER GROWTH IN 2021

Transformational consultancy appoints new Director of Financial Services, Strategy & Business Development alongside a series of senior promotions   Brickendon,...

Finance2 days ago

WHAT’S NEXT? PAYMENT TRENDS IN 2021

Philip McHugh, CEO at Paysafe   Undoubtedly COVID-19 is going to continue having an impact on us all at least...

Top 102 days ago

THE TOP 5 CRYPTO EXCHANGES IN THE WORLD YOU SHOULD KNOW ABOUT

Introduction Crypto Exchange is a very important part of the Cryptocurrency EcoSystem. Crypto exchanges are the platform where transactions take...

Finance5 days ago

FIVE TRENDS THAT WILL IMPACT THE FINANCIAL SERVICES INDUSTRY IN 2021

Ian Johnson, Managing Director Europe at Marqeta   Coronavirus has shaken things up across all industries, and financial services is no...

Wealth Management5 days ago

CHECKLISTS FOR CHOOSING A CORRECT TRADING MENTOR

The trading mentor should be proficient in the particular field and have proper cognition about the field. The duty of...

News5 days ago

FUNDS’ RUSH TO THE CLOUD MUST NOT BE A BOX TICKING EXERCISE

By Ed Gouldstone, Global Head of R&D for Asset Management at Linedata   The fund management industry has held up...

News5 days ago

MORE THAN HALF OF EUROPEAN SMES CONFIDENT IN 2021 BUSINESS RECOVERY

Finland most confident in Europe followed by France, UK and Germany – Spain, doesn’t show the same optimism Hope for...

Business5 days ago

BOUNCING BACK IN 2021: DIGITAL TRANSFORMATION IS NO LONGER A CHOICE AS DEPENDENCE ON 5G, IOT AND DATA INCREASES IN SOCIETY AND BUSINESS

Ivan Ericsson, Head of Quality Management, Expleo Group Limited   The global pandemic has put enormous strain on businesses and brought into...

Finance5 days ago

2021 IS THE YEAR FOR DIGITAL WORKFORCE MANAGEMENT IN FINANCIAL SERVICES

By Tyler Suss, Product Marketing Director at Kofax   Even before the pandemic, the UK financial services sector viewed digital...

Finance5 days ago

WHAT’S IN STORE FOR PAYROLL IN 2021?

Simon Parsons, Director of Payments, Benefits & Compliance Strategies, SD Worx UK   Payroll teams have recently faced up to the...

Technology5 days ago

DRIVING DIGITAL TRANSFORMATION IN 2020

by Andrew Foster, VP Consulting EMEA, AppZen   As organisations adapt to dramatic changes in working practices, the need for...

Finance5 days ago

PAYMENTS MODERNISATION – STRATEGIC PRIORITIES FOR FINANCIAL INSTITUTIONS IN 2021

Dudley White, SVP, General Manager, Financial & Risk Management Solutions, Fiserv   As the steady march toward payments modernisation continues,...

Business5 days ago

THE FUTURE OF SAVVY TECH PURCHASES IS KNOWING WHEN TO BUY

There’s no mistaking the impact technology has had in our lives. Once a novelty, technology has now infiltrated every aspect...

Wealth Management5 days ago

WHAT CAN WE LOOK FORWARD TO FOR EARLY-STAGE INVESTMENT IN THE COMING 12 MONTHS?

By Chantelle Arneaud, Envestors   What can business owners expect in the early-stage investment space in 2021? Having faced the...

Business5 days ago

PROPER ESTATE PLANNING IS ESSENTIAL AMIDST COVID-19 PANDEMIC

By Christel Botha, fiduciary services manager at Alexander Forbes   Paperwork and thinking about one’s death are both probably equally unpopular,...

News6 days ago

WHY BIOMETRIC CONTACTLESS CARDS WILL SOON BECOME THE NEW STANDARD

Payments should be time convenient and secure at the same. Biometric contactless cards not only meet these standards, but go...

Finance6 days ago

5 ACTIONABLE INSIGHTS FOR PRIVATE INVESTORS IN 2021

By Ben Hobson, Markets Editor, Stockopedia    COVID-19 has been a wake-up call for businesses and investors alike. Few could imagine...

Finance7 days ago

2021 PREDICTIONS: OPERATIONAL RESILIENCE TAKES CENTER STAGE

Brian Molk, Fusion Risk Management   Breaking down barriers between Risk and Business Continuity   What a year! Simply put,...

Trending