Traders are betting artificial intelligence and machine learning will have the biggest impact on financial markets in the coming years.
More than half of respondents to a JPMorgan Chase & Co. survey of 835 institutional and professional traders said those technologies would have the most influence on trading in the next three years. That’s up from a quarter in 2022.
“This trend toward automation is something we’re seeing across the market now, and is expanding into the credit and rates side as well as commodities,” said Scott Wacker, head of FICC e-commerce sales at JPMorgan.
Quantitative hedge funds are “bringing systematic models optimized with machine learning to over-the-counter markets,” he said. “We’re also seeing asset managers using data in a more dynamic way using AI-enhanced technologies to assess and improve how they’re executing trades.”
Many asset managers already try to integrate some form of AI into their systems and algos, according to Bloomberg Intelligence’s 2022 US Institutional Equity Trading study. Still, the majority regarded AI as more of a “catchword emerging technology.”
Since then, the release of ChatGPT in November has turbocharged broader interest in AI technology and natural language processing. The tool has lit up the internet and sparked a fresh debate over the role of AI across workplaces.
“People are amazed at what AI technology can achieve,” said Wacker. “Natural language processing is moving along at pace, but it’s a little harder to configure right now. It’s at the beginning of a journey.”
AI Still Largely a Catchword for Traders
Elsewhere in JPMorgan’s survey, there were signs the past year’s turmoil in the cryptocurrency industry had curtailed enthusiasm toward the asset class. Some 72% of traders said they have no plans to trade crypto, up from around a quarter last year.
Separately, blockchain and distributed ledger technology was seen as having the third-largest impact on trading after AI and Application Programming Interface (API) integration, which allows apps to work with each other. JPMorgan is using blockchain in repurchase agreement markets.
“Blockchain in terms of settling and managing trades is going to be very interesting,” said Wacker. “It’s a little further down the line. But in the same way that AI and machine learning weren’t quite there a couple years ago, blockchain technology is poised to move up the ladder.”
Traders predicted that ‘recession risk’ will have the biggest impact on markets in 2023, closely followed by ‘inflation’. And in a change to the survey response for the last six years, ‘Liquidity Availability’ was no longer the leading daily trading challenge. Instead, 46% of traders predict ‘Volatile Markets’ will be their greatest daily trading challenge in 2023.
That is “testament to how well the market has functioned over the past 12 months that liquidity concerns have reduced so drastically,” Wacker said. “In spite of the elevated volatility and activity, the markets have proven robust and reliable.”
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