AI revolutionises retail trading from Gen AI to AGI

We're already living in the era of Artificial Intelligence (AI), and the retail trading landscape is undergoing a rapid transformation with AI at the helm; for instance, algorithmic traders use complex algorithms to plan and execute trades. As with chess, an AI trained specifically for a task can outperform humans, and it is certainly faster.

While Generative AI (Gen AI) is already providing traders with powerful tools, the development towards Artificial General Intelligence (AGI) signals another significant shift, raising both opportunities and challenges for market participants.

Before going into the market implications, let's look at the difference between Gen AI and AGI:

• Generative AI (Gen AI):

1. Focuses on creating new content, such as text, images, or data.
2. Excels at tasks like analysing market sentiment from social media, generating personalised trading strategies, and simulating market scenarios.
3. Operates within specific domains, meaning it's highly effective at its designated tasks but lacks broad, human-like intelligence.
4. Current applications include enhanced market analysis, risk management tools, and personalized trading experiences.

• Artificial General Intelligence (AGI):

1. Aims to replicate human-level intelligence, capable of understanding, learning, and applying knowledge across diverse domains.
2. Hypothetically, AGI could autonomously analyze complex global events, predict market movements with exceptional accuracy, and adapt to unforeseen market conditions.
3. Represents a future stage of AI development with the potential to revolutionise trading by enabling fully autonomous systems.

Gen AI is already reshaping retail trading, providing traders with advanced analytical capabilities . Some of the key applications include:

• Sentiment Analysis:
  • Gen AI algorithms are parsing vast amounts of unstructured data, from news feeds to social media, to provide real-time market sentiment indicators.
  • This allows traders to anticipate market shifts driven by public perception and media narratives.
• Strategy Development:
  • AI-powered platforms are also generating personalised trading strategies based on individual risk profiles and market conditions.
  • This empowers retail traders with access to sophisticated quantitative analysis previously reserved for institutional players.
• Risk Management:
  • Gen AI is enhancing risk assessment by identifying potential market anomalies and predicting volatility spikes.

The numbers tell the story, as far as Singapore's AI growth is concerned. In 2024, Singapore had an artificial intelligence deployment rate of 53%, according to Statista. This was higher than the global adoption level, and among the highest AI adoption rates in the world.

Singapore in 2023 has also launched the Singapore National AI Strategy 2.0 (NAIS 2.0) in its ongoing pursuit of setting the pace of AI growth in the country.

While AGI remains under development, its potential impact on trading could be immense as well:

• Autonomous Trading:
  • AGI could enable fully autonomous trading systems capable of executing complex strategies without human intervention. However, questions remain about its impact on market stability and how the regulatory oversight will work.
• Advanced Predictive Modeling:
  • AGI's ability to process and synthesise vast datasets could lead to significantly more accurate market predictions. This could give traders who utilise AGI a considerable advantage.
• Market Dynamics:
  • The use of AGI could dramatically increase the speed and complexity of market interactions. This could lead to increased volatility, and the need for new regulatory frameworks.

• The ethical implications of AI in trading, including algorithmic bias and market manipulation, require careful consideration.
• Regulatory bodies face the challenge of adapting to the rapidly evolving AI landscape.
• The speed of AGI development is a large unknown, and that makes predicting the future market very difficult.

In this context, it's crucial to consider the Monetary Authority of Singapore's (MAS) stance on AI and automation within the financial sector. MAS has actively engaged in fostering responsible AI adoption, emphasising the importance of robust governance frameworks and ethical considerations. For example, MAS has published principles on fairness, ethics, accountability, and transparency (FEAT) for the use of AI and data analytics in finance. They actively encourage financial institutions to implement these principles, aiming to build trust and ensure responsible AI deployment.

The implications of AI in trading are profound, but it's important to remember that AI is a tool, not a replacement for human intuition and experience. As traders, we still need to understand market dynamics, interpret data, and make informed decisions. The psychology of trading, emotional discipline, and risk management remain crucial.

.Beyond the data influx provided by AI, successful trading demands a deep dive into your own psychology. Before you even start, be clear about your strategy, goals, and why you're trading in the first place. Figure out your style – technical or fundamental analysis? Understanding the psychology of your decisions can help you avoid common mistakes like overtrading, revenge trading, or chasing losses. Risk management is absolutely essential – it should be part of every decision.

In navigating this new landscape, I believe a few things are key:

• Embrace technology, but don't forget the fundamentals. AI can enhance your trading, but it can't replace your understanding of the market.
• Stay informed and adaptable. The trading world is constantly changing. Continuous learning is essential.
• Find a balance between AI and human intuition. Use AI to inform your decisions, but trust your gut.
• Choose your partners carefully. Select brokers and platforms that align with your values and offer the support you need.

The future of trading is a blend of human ingenuity and technological innovation. It's an exciting time to be involved, and I'm optimistic about the opportunities that lie ahead.

Also read - The evolution of retail trading in Asia Pacific and how to navigate it