How AI Can Change Finance and Crypto Trading Platforms

AI analysis technology is impacting the financial landscape in a big way. Will it hurt or help though? This article dives into all the details you need to know to stay ahead of the curve.

by
Tony A.

Editor-in-Chief

Connect with him about writing techniques, cryptocurrency, and music.

Artificial Intelligence, commonly abbreviated as AI, is a modern-day phenomenon. It’s popping up in all facets of our lives now - including our wallets. AI-assisted finance and crypto trading platforms are changing the industry. But is it for the better? The short answer is “yes” and here’s why.

The Role of AI Analysis in Finance

For years, humans have explored the idea of a computer program that can think for itself. The term, “artificial intelligence” (AI) itself has been around for almost 70 years. Since then the discovery of AI and its potential capabilities has begun. Nowadays, we can see the applications of AI in our everyday life. Every sector and industry seems to have found a way to incorporate AI today. AI has proved to be beneficial again and again, in making our life a bit easier every day.

The first application of AI analysis in the financial industry began in the 1980s. Expert systems were used to replace humans in predicting market trends. They also provided us with customized financial plans. This was done to reduce the risks of human mistakes, which can be fatal in volatile financial markets.

The implementation of this system was successful. It helped financial institutions to save almost $10 millionyearly. Then, the use of AI was implemented everywhere. From fraud detection, help deciding the approval of corporate loans, to security data analysis.

In trading, AI has advantages over conventional methods of trading analysis. AI can effectively process millions of data in real time, which current statistical models couldn’t do. This, if used correctly, will provide the user with the most accurate analysis for the present time.

Predictions can be more accurate, and the output result of AI analysis can also be updated in real-time, which matters in trading. This is game-changing and could be a key factor in deciding profit and loss (PNL) in trades.

Suggested reading: What is Profit and Loss (PNL)?

AI Crypto Trading Definition

An AI crypto trading bot is a computer program that uses machine learning to trade cryptocurrency. This is programmed to be effective and beneficial to the user. An AI trading bot can process important data regarding the trade. Then it uses the data to analyze what is the best move for the trade.

Using an AI bot in crypto trading has many advantages, such as decision-making speed, which

is critical in cryptocurrency trading. It is also accurate, as long as the program is coded correctly.

You can also automate the trades too. This means that you can program your AI bot to analyze the data and make trades according to the analysis result.

In the present day, we are experiencing a rise in algorithmic trading. This was first done to minimize the risk of loss because of human errors, and to trade at a much higher speed. The use of AI in trading is an example of algorithmic trading. What makes AI use different from other conventional methods is the AI's ability to learn by itself, so it needs less supervision from the user.

Examples of AI Analysis on Crypto Trading Platforms

The ability of AI to work 24/7 allows for real-time market monitoring. This means, AI can continuously collect data on the market. This data then can be used to make predictions and trades. Potentially, it will generate more profit compared to human trading.

There are a few examples of AI analysis success stories in crypto trading:

  1. Alexander Benigni, in Quora, shared that he experimented with AI bots in crypto trading for 6 months. From a total of 9 bots, all resulted in a profit varied from 20% to 200% at the end of month 6.

  2. AI trading robot reportedly generated a return of $38,000 from a $5,000 investment over a week, according to user Jeanne P. Frahm on medium.com.

  3. An article in fortune.com titled, “‘Sandwich traders’ are making billions on crypto. Most of them are bots.” on February 8th, 2022.

Risk Management

Artificial intelligence (AI) has the potential to effectively mitigate risks in cryptocurrency trading through the application of predictive analytics. Predictive analytics entails the utilization of data to forecast:

  • forthcoming outcomes,
  • employing methodologies like data analysis,
  • machine learning,
  • and statistical modeling

to identify patterns that can be harnessed to anticipate future behaviors.

Predictive analytics offers traders valuable insights into upcoming market trends, equipping them with the information needed to make well-informed decisions. AI's real-time data processing capabilities enhance the accuracy and timeliness of these predictions compared to human traders. This is particularly vital in the cryptocurrency market, renowned for its high volatility and rapid fluctuations.

Leveraging AI for predictive analytics allows traders to minimize the risk of financial losses. This is achieved by enabling decisions based on precise predictions of future market trends rather than relying solely on intuition or emotional factors.

Nonetheless, it's crucial to acknowledge that AI is not infallible and can occasionally make errors. Therefore, it remains prudent to complement AI with other risk management strategies, such as implementing stop-loss measures and diversifying investments.

AI Trading Strategies

There are many AI-driven trading strategies available now, all with their own speed and risk level. There is AI Momentum Trading, a high-speed trading strategy with a moderate risk level. AI Means Reversion Trading, which trades at a low speed but with a lower risk level. These strategies are crafted with machine learning and neural networks that use unique algorithms for each strategy. Users may choose from a wide variety of trading strategies that cater to their risk profile.

Challenges and Ethical Considerations

AI implementation has its benefits, but also gives challenges to people developing the AI. These challenges are:

  • technical complexity,
  • over-optimization,
  • lack of human judgment,
  • and regulatory concerns.

There is also a risk of an AI trading bot being hacked, or programmed poorly so it makes some poor decisions.

One of the major ethical concerns of AI is algorithmic bias. The behavior of AI machines is based on the data they are trained on. If the data is biased, then the AI will learn and reproduce that bias. AI can also be used to manipulate the market, which can hurt other traders. Previous algorithmic traders have faced criminal prosecution by systematically engaging in market manipulation that is deemed illegal by regulators.

AI Analysis: Future trends

The utilization of AI in crypto trading is expected to persist for the foreseeable future unless a new groundbreaking technology emerges. During this time, AI will continue to introduce fresh innovations to both the financial sector and the cryptocurrency industry.

AI equips traders with the capability to make highly precise price predictions. The progression of AI-powered trading bots is likely to usher in more sophisticated strategies, empowering traders to adeptly navigate complex market fluctuations.

Additionally, the integration of AI with emerging technologies like blockchain has the potential to yield trading platforms that are not only more secure and transparent but also significantly more efficient.

Conclusions

An AI crypto trading bot is a computer program that is programmed to be effective and beneficial to the user in crypto trading. Using Walbi’s AI crypto trading bot has many advantages, such as decision-making speed, which is critical in cryptocurrency trading. It is also accurate, and you can also automate the trades too.

While AI has its disadvantages too and is still in the early stages of adoption, it will only get better if we continue to use it and offer developers valuable feedback.

So give Walbi Lighthouse a try and let us know what you think of the ou our AI analysis for crypto trading. We appreciate your help!