• Jos Evans, CEO at AiX


• 31.01.2018 07:30 am
undisclosed

In recent years, there has been a lot of buzz about artificial intelligence (AI) and how it is set to improve not only the quality and efficiency of our work and personal lives, but also completely replace many jobs. In many sectors, this is already happening. In financial services, algorithms are now widely used to provide financial advice to support decision-making. For the investment sector, the arrival of AI chatbots on the trading floor is imminent.

We have come a long way from the chaotic, open outcry markets of the 1980s. Face-to-face interactions were gradually replaced with phones, then by electronic trading systems of the Big Bang. One of the few constants in this ever-changing and forward-facing market is the role of inter-dealer brokers. The role of these individuals has stayed largely unchanged in spite of everything around them changing. Now, at long last, this is set to evolve too.

Everyone is familiar with the often-touted benefits of AI. What a human can do; AI can perform better, faster and often at a much lower price. It boasts superior decision making through in-depth analytics. This naturally leads to more accurate predictions performed at a much greater speed and therefore users are able to execute a much larger volume of trades at a time.

On paper, it seems like an ideal fit, but there is one more benefit that is often overlooked that is specific to the investment sector. That is the thorny issue of transparency.

Transparency on the blockchain

One of the biggest and most recent scandals in banking was the Libor scandal, in which certain inter-dealer brokers colluded together to fix interest rates. There is no doubt the incident contributed to society’s growing distrust of banks and other financial institutions. The scandal was a perfect example of why having an increased level of transparency would have produced a dramatically different outcome and provides further proof of why having transparency is so important now and in the future.

An AI chatbot, supported by a blockchain platform, is an ideal system for providing the necessary level of transparency to prevent attempts to abuse the financial markets. It isn’t necessary to delve into the specifics of how blockchain works but put simply, all transactions and market movement will be recorded on the blockchain, where it cannot be altered or modified, so any attempts to manipulate information will be difficult and also completely visible to the public.

The right AI

All is good and well on the transparency front with public records on the blockchain. However, one possible reservation that people may have is being, understandably, wary about putting major trading decisions in the (figurative) hands of AI.

Therefore, getting the right type of AI behind trading chatbots is essential to optimising trades as well as engendering trust. AI chatbots are already being used in the banking sector by the likes of Celo and Revolut to handle simple customer service enquiries, but this limited use is far from realising the true capabilities of AI to improve banking.

Cognitive reasoning AI platforms like Rainbird mirror human logic and decision making by drawing on and analysing huge amounts of data and knowledge maps. The ‘human’ logic process means that users engage with the thought process of the chatbot, so they fully understand how trading decisions have been made.

In the event that a chatbot does not have all the information necessary to come to a fully informed decision, the user can interact with it, either through voice or text, and communicate additional information to the chatbot (including asking questions).

Risk is an undeniable element in investment banking. Traders all like to play the game differently, thus the amount of risk taken by the chatbot can be tailored towards user preference. The end result is a fairer, mutually beneficial marketplace as any manipulation is immediately evident and, traders can use automated brokers to significant improve the efficiency and quality of trades while saving money on transfers.

Bridging the markets

Blockchain is the platform upon which cryptocurrencies like Bitcoin are built, and both continue to receive a lot of media attention. With the exponential increase in the value of Bitcoin over the past year, many traders will be keen to get involved as soon as possible to maximise their earnings and capitalise on the opportunity.

However, currently, it is a needlessly complicated task trading in different stocks as it can be necessary for traders to be in touch with numerous inter-dealer brokers. Due of this the cryptocurrency market remains isolated from the traditional financial markets.

AI chatbots represent a perfect solution to bridge disparate markets together, including the increasingly lucrative cryptocurrency market, and makes it much easier for people to trade simply, trade quickly and trade smarter.