Optimized Data, trading tools, and risk management are needed to take the next step forward.
By Michael Sprachman, Director of Exchange Traded Solutions at Devexperts
Programmatic trading has been around for 20+ years – since you could enter an electronic order. And even before the current advancements in AI, a program could be written to tell you, based on input and signals, the optimal time to enter and exit a trade.
Specifically, we have an entire industry of analysts that look at as many data points as they possibly can and generate a rating or review on a stock. However, if we could write a program to make those decisions using AI, it would just be replacing analysts with a tool. Meaning you still need to make the decision if you want to get in or out – and when you want to get in or out.
It’s likely if you asked 10 people on the street “what do you want AI to do for you in trading,” they’re going to say, tell me a strategy and give me entry and exit points. Hence, even with advancing technology, there is still a human element to trading – and until we are ready to trust AI to invest, there are three other features that retail brokers should invest in when choosing a platform, to be as effective, efficient and responsible as possible.
Data. As much as possible
Whether it’s market data like prices, level one/level two/level three data, a book of orders that’s published in the marketplace, data on earnings, or even data on companies – the more data you have, the more competitive you are. That’s because having extensive data would allow your users to create their own trading strategies and potentially use AI to create their own trading programs. However, even when implementing AI in their trading strategies, they still have to use you as a broker since you have the data that they rely on.
Trading tools
This would be everything from widgets to market data that you’re collecting, calendars, stock screeners and scanners, heatmaps that show how the market is moving during the day – all things that make it easier for the average trader to consume all this data. This also includes programming languages, whether it’s free or open APIs, or custom scripting languages to allow users to consume data in more ways than simply via the UI. Ultimately, a user-friendly experience for brokers leads to users trading more, which generates more fees, more deposits and grows the user base.
Effective Risk Management
As you grow your user base and you start offering access to additional markets, you need a way to control the risk for your users. For example, as we transition into a more global-facing retail marketplace, where anyone can trade stock in Hong Kong, Israel or Europe, and incorporate offerings of more and more exotic asset classes, firms increasingly need to look at their risk strategically and their enhanced risk management solutions to ensure that they don’t get stuck in a position where a single customer can blow out their profits for an entire quarter.
