{"id":141,"date":"2015-09-16T18:11:40","date_gmt":"2015-09-16T16:11:40","guid":{"rendered":"http:\/\/aireligion.org\/?p=141"},"modified":"2015-09-16T18:14:38","modified_gmt":"2015-09-16T16:14:38","slug":"how-artificial-intelligence-is-transforming-the-financial-industry","status":"publish","type":"post","link":"https:\/\/aireligion.org\/?p=141","title":{"rendered":"How artificial intelligence is transforming the financial industry"},"content":{"rendered":"
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Your next stockbroker might just be a computer.<\/p>\n

More and more, financial firms are turning to machines to do the job humans have done for decades.<\/p>\n

Last spring, wealth management firm Charles Schwab launched a new service called Schwab Intelligent Portfolios. The service is unique in that it’s not a person who decides where to invest your money, it’s an algorithm – lines of code programmed into a computer.<\/p>\n

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“It’s lower cost for the investor,” says Tobin McDaniel, who leads the Schwab Intelligent Portfolios team.<\/p>\n

“As opposed to working with a traditional advisor where you might pay up to 1%, here you get portfolio management at essentially no management fee.”<\/p>\n

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To get started with Schwab Intelligent Portfolios, you answer a short questionnaire aimed at determining your appetite for risk and your investment goals. Algorithms then create a portfolio suited to your profile and manage it on a daily basis.<\/p>\n

Instead of simply crunching numbers, the machines are now making decisions.<\/p>\n

And that increasingly describes the rest of the financial system.<\/p>\n

Robo-advisors to robo-trading<\/h2>\n

Machines are now responsible for most of the activity on Wall Street.<\/p>\n

\"TraderImage copyright<\/span>Getty Images<\/span><\/span>
Image caption<\/span>Pit closure: A Chicago trading floor, many of which were shut this summer<\/span><\/figcaption><\/figure>\n

And just this summer, the Chicago Mercantile Exchange Group closed most of its trading pits after 167 years.<\/p>\n

The practice of traders shouting and using hand signals to buy and sell commodities had become outdated. The work they once did has been replaced by a much quieter competitor – the computer.<\/p>\n

Brad Bailey is a research director at Celent, and an expert on electronic trading.<\/p>\n

“Before we were limited to human response time, which is about half of a second or about the blink of an eye,” he says<\/p>\n

“Now when you think about trading, things are happening in nanoseconds, or certainly milliseconds.”<\/p>\n

Supporters say computers boost liquidity, helping would-be buyers and sellers find one another without middlemen.<\/p>\n

\"ComputerImage copyright<\/span>Getty Images<\/span><\/span>
Image caption<\/span>Meet your new share adviser<\/span><\/figcaption><\/figure>\n

Then there are the high frequency traders. They zip in and out of shares so quickly, and on such a massive scale, that their fortunes are lost and made by tiny price movements.<\/p>\n

Other algorithms rely more on artificial intelligence to pour over earnings statements, news reports and regulatory filings looking for clues on how to view a stock.<\/p>\n

While these lines of code are faster and more efficient than people, Brad Bailey warns that “[a] lot can happen in those time frames before humans can react”.<\/p>\n

Not all of it good.<\/p>\n

The ugly side<\/h2>\n

In 2012 US market maker Knight Capital lost over $400m (\u00a3261m) in 30 minutes because of a computer glitch. And this summer trading was halted at the New York Stock Exchange following a software problem.<\/p>\n

These events have raised doubts about the stability of computerised trading systems. Critics argue it has made markets more volatile.<\/p>\n

\"ManImage copyright<\/span>Getty Images<\/span><\/span>
Image caption<\/span>Leaving computers to handle the trading can lead to problems<\/span><\/figcaption><\/figure>\n

And what about trading rules? Are they fit for purpose with markets that now handle orders in milliseconds?<\/p>\n

“We live in a world where you can’t prevent every problem,” says Ron Geffner, a former Securities and Exchange Commission attorney who now works with hedge funds.<\/p>\n

“It takes time for regulators to spot the problems, become aware of it, and once they become aware of it to adopt rules.”<\/p>\n

To prevent big swings, US financial regulators have implemented a raft of measures including single stock circuit breakers. The rule requires a pause in trading for individual stocks if the price moves 10% or more in a five-minute period.<\/p>\n

And companies like Charles Schwab have also instituted safeguards.<\/p>\n

Just this August, when the Dow fell more than 1,000 points during the trading session, Charles Schwab convened a panel of people to check if the huge volume of orders its Schwab Intelligent Portfolios was about to place was the right move.<\/p>\n

Todd McDaniel tells the BBC: “We’ve got a human checkpoint”.<\/p>\n

People still have a role in the financial system but it’s changing. On Wall Street at least, it’s a machine’s world.<\/p>\n

http:\/\/www.bbc.com\/news\/business-34264380<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

\u00a0 Your next stockbroker might just be a computer. More and more, financial firms are turning to machines to do the job humans have done for decades. Last spring, wealth management firm Charles Schwab launched a new service called Schwab Intelligent Portfolios. The service is unique in that it’s not a person who decides where … Continue reading How artificial intelligence is transforming the financial industry<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[2],"tags":[],"_links":{"self":[{"href":"https:\/\/aireligion.org\/index.php?rest_route=\/wp\/v2\/posts\/141"}],"collection":[{"href":"https:\/\/aireligion.org\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/aireligion.org\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/aireligion.org\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/aireligion.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=141"}],"version-history":[{"count":2,"href":"https:\/\/aireligion.org\/index.php?rest_route=\/wp\/v2\/posts\/141\/revisions"}],"predecessor-version":[{"id":145,"href":"https:\/\/aireligion.org\/index.php?rest_route=\/wp\/v2\/posts\/141\/revisions\/145"}],"wp:attachment":[{"href":"https:\/\/aireligion.org\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=141"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/aireligion.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=141"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/aireligion.org\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=141"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}