As we all know ChatGPT is a hugely popular artificial intelligence chatbot, it will give you itineraries for your trips and even write songs for you. But can it predict stock price movements? Research says Yes! Two finance professors Alejandro Lopez-Lira and Yuehua Tang from the University of Florida put ChatGPT to the test. With the help of a few headlines, it can determine the up or down of the stock price. But the question is if it can help you with your stock trading in SA. Let’s dive in and see how ChatGPT can influence stock trading online.
Can AI take over the Online Trading Market?
The idea of AI completely taking over the online stock trading market is highly unlikely. While AI has demonstrated significant advancements in financial trading, there are several factors to consider:
- Human Intervention: The experience, judgement, and intuition of human traders remain crucial in understanding complex market dynamics, interpreting news events, and making strategic decisions.
- Financial Markets: They are influenced by a wide range of factors, including geopolitical events, economic shifts, and investor sentiment. AI models may struggle to adapt quickly to unexpected and unprecedented situations.
- Safety & Security: The use of AI in trading raises ethical concerns, including market manipulation and algorithmic biases. Regulatory frameworks are necessary to ensure fairness, transparency, and investor protection.
- Technical Challenges: AI models have their limitations, such as overfitting historical data, difficulties in interpreting causality, and challenges in handling extreme market conditions. Human oversight is essential to validate and interpret AI-generated trading decisions.
Ultimately, successful trading requires a combination of technological advancements, human judgement, and regulatory safeguards to navigate the complexities of the financial markets effectively.
Merits of using ChatGPT for Forecasting Stock Trading
- Language Understanding: It demonstrates exceptional language understanding, allowing it to process and interpret textual data related to forecastings, such as news articles, financial reports, and market indicators.
- Large-Scale Data Analysis: It can handle vast amounts of data, enabling it to analyse historical trends, market patterns, and other relevant information crucial for forecasting.
- Pattern Recognition: ChatGPT’s ability to identify patterns and correlations in data can be advantageous for spotting trends and making predictions based on historical market behaviour.
- Speed and Efficiency: Its computational power allows it to process and analyse data quickly, providing timely insights for forecasting purposes.
- Continuous Learning: It can be trained and fine-tuned using updated data, enabling it to adapt to changing market conditions and enhance its forecasting capabilities over time.
Demerits of using ChatGPT for Forecasting Stock Trading
- Reliance on Historical Data: It primarily relies on historical data for forecasting, which may not fully capture the dynamics of rapidly changing market conditions or unexpected events.
- Lack of Real-Time Insights: Its predictions may not incorporate real-time market information, as it may not have access to up-to-the-minute data that can impact stock prices.
- Interpretability Challenges: Its decision-making process may lack transparency, making it difficult to understand the reasoning behind its predictions. This can be a drawback when seeking insights for informed decision-making.
- Overfitting Risks: It may be prone to overfitting, where it learns to predict historical data accurately but struggles to generalise and predict future market movements accurately.
- Need for Human Oversight: While it can generate predictions autonomously, it still benefits from human oversight and critical analysis to validate and interpret its forecasts accurately.
What is in the future for the investors?
According to Yuehua Tang, it may not be advisable to compete with institutional investors using advanced trading tools based on headlines. However, there can still be benefits for retail investors. An efficient market, driven by advanced technologies, leads to fair pricing and improved opportunities for retail investors.
Furthermore, the research done by professors of the University of Florida suggests that the inclusion of ChatGPT in stock trading platform discussions could influence regulatory measures. As investors increasingly rely on news and headlines, regulators may need to intervene to ensure the accuracy and reliability of the information provided, as noted by Lopez-Lira.
It’s important to note that large language models like ChatGPT are continuously evolving. To stay up to date, the researchers plan to expand the dataset by incorporating more recent timeframes and updated versions of ChatGPT.
Online Stock Trading Platforms in South Africa
Over the years, stock trading in SA has become increasingly popular. When selecting a stock trading platform, it is essential to prioritise regulation and security, examine the fees and commissions applied, assess the range of available markets and trading instruments, evaluate the platform’s trading tools and features, ensure user-friendliness and accessibility, verify the quality of customer support, and consider the availability of educational and research materials. While there are numerous brokers offering these services, it is crucial to choose a reputable one authorized by the Financial Sector Conduct Authority (FSCA). Banxso – online trading platform FSCA-approved in South Africa, stands out by charging zero commission for stock trading online.