Artificial intelligence, or AI, is changing our day-to-day lives in many different ways. It allows us to perform research and generate written content faster than ever before; it makes technologies like autonomous vehicles possible; and AI enables virtual assistants to automate many daily tasks, just to name a few examples.
AI has also transformed the financial services industry, and this evolution is ongoing -- with serious momentum. AI can already automate key parts of the investment process, such as portfolio rebalancing and investment analysis. For investors, the ever-advancing capabilities of automated financial services mean robo-advisors can perform many of the same functions as a human financial planner at a fraction of the cost.
Another area where AI has made a big impact is stock trading. Over the past 30 years or so, the ways stocks are bought and sold have evolved dramatically. But disruption from AI technology is changing stock trading at a faster pace than ever.
How AI is disrupting stock trading
Here are a few of the biggest recent changes:
- AI algorithms can execute thousands of trades per second for professional traders and institutional investors, capitalizing on short-term price inefficiencies quicker than any human could.
- AI models can detect complex trading patterns and act on market trends faster than a human could detect manually.
- AI can optimize trade execution by routing orders in the most efficient way to minimize costs and fill orders quickly.
- Large language models (LLMs) can process huge volumes of news articles, analyze social media posts, examine earnings calls, and review financial reports to predict stock price movements.
- AI systems can provide round-the-clock trading services, especially given the many brokers that offer 24/7 trading. For example, AI can rebalance your portfolio in the middle of the night, when markets are less volatile.
This isn't an exhaustive list, but the point is that AI is impacting stock trading in some big ways.
What AI-powered stock trading means for you as a long-term investor
The short answer is that AI disruption in stock trading is making day-trading even less practical for the average investor than it ever has been. Retail investors have always had a speed disadvantage compared to the high-powered trading systems used by institutional investors and professionals, but with today's high-frequency trading (HFT) systems, the gap has widened further. It is nearly impossible for individuals to find and exploit short-term market inefficiencies.
In a nutshell, the average day trader has historically not performed well, which has been documented in numerous studies over the years. But it's even harder to compete with institutional players now.
It's also worth noting that AI-powered trading algorithms can amplify volatility and market momentum. AI-powered trading systems can execute trades at extremely rapid paces, causing flash crashes and amplified reactions to market news.
For everyday investors, the biggest impact of AI on stock trading is a less direct one – especially for those with a long-term focus. AI-powered trading has made automated investing platforms just as effective as humans at constructing age-appropriate portfolios and implementing strategies such as tax-loss harvesting and portfolio rebalancing. It also allows financial service providers to perform these functions cost-effectively and pass along the savings to their customers.
Fees still vary significantly based on the scope of services provided, but traditionally, it has cost about 1% (or more) of assets under management each year to hire a full-service financial planner.
For example, Range offers a combination of a sophisticated AI chatbot and human financial advisors, along with end-to-end wealth management for a flat annual fee of $2,950 to $9,950, which includes access to human financial planners as needed. This is quite a bargain for high-net-worth individuals. AI has enabled the company to improve its capabilities to the point where it can provide a full range of financial planning services with far less reliance on human resources than traditional human-only financial services providers.
You can book a complimentary demo with Range and discover how you can get personalized wealth management for investing, taxes, and more – all for one flat annual fee.
