The stock market in India is the core story behind the economics of the country. The application of technology has made it easier than ever before. Technology and stock market have an inherent connection since the new applications have enhanced an error-free operation and accuracy. Technology has helped in the smooth operation of stock market in many possible ways. Let’s see how technology works in the stock market.
- Trading platform and access: The online brokerage services facilitate investors trading stocks instantly from any location. There are mobile apps that have democratized investing and have allowed the investors to access the market easily.
There is an API-based trading platform that is automated and custom-strategized for advanced users. The trading platforms are software systems that are used to utilize and manage market positions online. They offer sophisticated tools like real-time streaming, advanced charting tools, and live news feeds. They offer educational resources for accessing proprietary research. Through the trading platforms, traders can buy and sell stocks, mutual funds, and Electronic traded funds (ETFs).
- Algorithmic and high-frequency trading (HFT): Technology will power an algorithm that will execute the trade in a fraction of a second based on some predefined conditions. High-frequency trading firms will use sophisticated systems and trade thousands of times in a second. They will be capitalized on a minute price difference. There will be increased liquidity, and there are risks like flash crashes. The benefits of algorithmic trading are better prices, improved accuracy, increased speed, and lower transaction costs. While HFT ‘s are considered into trading, they enhance larger wins on smaller prices. There are expanded opportunities and higher market liquidity.
- Market data and Analytics: The real-time data feeds the analysis, and the big data analytics allow the investors to make faster and more informed decisions. AI and machine learning will help in recognizing patterns, predictive modelling, and sentiment analysis. There are platforms like Refinitiv, Bloomberg, and Yahoo Finance that help in market intelligence. Data-driven analysis enhances accuracy in-stock selection and allows investors to make confident decisions amidst emotional turmoil in the market. However, data quality and complexity remain a challenge, but that can be overcome by a balanced approach and detailed market insight. The greatest advantage of adopting a data analytical approach is unleashing a new era in investment strategy.
- Robo advisor and portfolio management: Robo-advisors use algorithms to create and manage investment portfolios with minimum human intervention. These services offer lower fees and are quite popular among passive investors. There are various advantages of having a Robo-advisor like:
- They charge lower advisory fees.
- There is a robust investment module.
- There is an easy account opening platform.
- Investors start with small net worths like zero or near zero minimum balance.
Robo-advisory is considered safe, like trusting humans.
- Blockchain and settlement: Blockchain technology is explored to speed up trade settlement, increase transparency, and reduce fraud. The market is made efficient by the virtue of tokenized stocks and smart contacts. Blockchain is a digital and decentralized transaction ledger. The block in the chain is publicly verified and encrypted. The main application in the stock market is:
- Stock registration and tracking.
- Real-time settlement and liquidity
- Managing digital security
The advantages of having blockchain technology in the stock market are -the reduction of transaction costs and increased operational efficiency.
- Cyber security & compliance: Technology is a necessity for cybersecurity and compliance. They can protect sensitive financial data and prevent any hacks. Regulatory technology helps financial institutions complying with market regulations. This AI -tool is instrumental for protecting financial institutions and customers from any possible cyberattack. The uses of cybersecurity compliance are:
- Safe-guarding sensitive data
- Assuring regulatory compliance.
- Mitigating financial and legal risks.
- Maintaining market integrity.
Compliance is necessary for building trust, avoiding penalties, and mitigating risks.
- Retail investor tools: Artificial intelligence and technology present a new range of possibilities and potential risks to investors. There are three broad uses of AI for retailers; they are mainly for decision support, automation, and identifying scams/frauds. The benefits of a technology-oriented approach are:
- Reduced cost
- Access for advice
- Improvement in decision-making
Platforms having self-directed AI advising have added features for supporting investor decision-making. AI -tools have an active role in predictive analytics in stock market.
- News & Sentiment analysis: Artificial Intelligence and other technology play an important role in making decisions in the sentimental analysis of the market. Technology is essential for businesses and aims to make data-driven decisions. NLP (Natural Language Processing) is used for machine interpretation. AI-based sentimental analysis utilized two most important aspects- Rule-based sentimental analysis and Machine-based sentimental analysis. The benefits of AI-based sentimental analysis are mainly:
- Brand sentiments
- Forecasting trends
- Customer service
- Competitor analysis
- Product development
- Refining market strategies
Sentimental analysis is used across industries like- Marketing & advertising, Customer service, Healthcare, Politics and Finance.
What are the benefits of AI trading?
Reducing research time and improving accuracy: AI trading automates data-driven decisions, allowing investors to spend less time on research and more time observing actual trade. According to a study, a trader using an algorithm improves productivity by 10%.
- Pattern prediction: By using sentimental analysis, a process of gathering text and linguistics, and also natural processing language, certain patterns with subjective will be identified. AI trading systems can gather information from the news and social media outlets. This sheds light on the potential investment pattern.
- Stronger risk management: AI tools can automate the process of data collection and building predictive models based on data. Investors can compile insights, access investment strategies, and make some necessary changes. AI tools avoid any emotional decisions but maintain consistent and logical trading.
- Lowering costs: While there are brokers, analysts, and advisors employed in observing the stock market movement, AI can reduce the overall cost to a huge extent. The cost incurred to maintain AI is much less than that of the necessary human resources.
Technology and stock market have calibrated in a manner to speed up decision-making amongst thousands of data. You can personalize some technology or AI tools to foster decision-making at the highest scale of efficiency if you are aiming to profit in the Indian stock market.
Citations:
https://www.investopedia.com/terms/t/trading-platform.asp
https://builtin.com/artificial-intelligence/ai-trading-stock-market-tech
https://www.investopedia.com/articles/personal-finance/010616/pros-cons-using-roboadvisor.asp
