Apr 04, 2023

AI Trading for Beginners

Artificial Intelligence (AI) trading bots are rapidly gaining in popularity, due to their increasingly advanced capabilities, ease of use, speed and versatility. In this guide to AI trading for beginners, we’ll discuss how AI trading works, the risks as well as the benefits of AI trading and we’ll provide a checklist for what to look…

Artificial Intelligence (AI) trading bots are rapidly gaining in popularity, due to their increasingly advanced capabilities, ease of use, speed and versatility.

In this guide to AI trading for beginners, we’ll discuss how AI trading works, the risks as well as the benefits of AI trading and we’ll provide a checklist for what to look for when picking a platform.

What Is AI Trading?

In essence, AI trading is the automated purchase and sale of financial assets, where an algorithm executes transactions based on pre-programmed triggers. The algo-trading bot will monitor multiple markets simultaneously, seeking trading opportunities and when certain market conditions are met it will buy or sell the chosen asset.

So, how does AI trading work? Different bots will use different technical analysis tools to anticipate market trajectories, such as On-balance volume (OBV), Accumulation/distribution line, Average directional index, Aroon oscillator, Moving average convergence divergence (MACD), Relative strength index (RSI), and Stochastic oscillator. The algorithm will automatically buy or sell when the indicator rises above, or drops below, a preset threshold. 

One example of an AI trade might be if the bot were programmed to instantly buy Twitter stock the second the price hits 50 and to automatically sell the stock if it drops below 40, using stop-loss and take-profit risk management tools to protect the bulk of your capital.

What Are the Pros of AI Trading?

AI trading offers a number of benefits. Firstly, you can buy and sell from home or on the go as most AI trading bots can be accessed from any screen, any time. Also, whether you choose to pre-program the bot with your own trading strategy or use a bot that is already programmed and requires nothing more than a deposit of funds, once it starts trading on your behalf, you can just get on with your day. 

The bot can trade 24/7 without getting tired, scanning multiple markets at once, processing a vast amount of data, making complex calculations at lightning speed, and executing a large volume of trades, at the same time. It can also exploit market opportunities without being swayed by human emotions, sticking to the strategy, no matter what.

Moreover, the increasingly crowded field of AI trading bots means that in a ever more competitive landscape, fees are getting lower all the time. 

What Are the Cons of AI Trading?

The major risk of AI trading is the same as for any other form of trading. You may lose your money since there is no way to predict market direction with absolute certainty.

With a bot, your success rate is only as good as the programming of your bot and the data it is fed, so you will always be vulnerable to the possibility of unrepresentative data or simply, a bad strategy. 

More sophisticated AI bots use machine learning capabilities and can learn as they go, improving the more data they receive and the more trades they make. However, they can still misinterpret the data they are being fed.

Many bots also require a high minimum deposit amount that excludes many traders from taking advantage of AI trading technology. 

What Should You Look for in an AI Trading Site?

There are a number of factors you should be assessing when picking an AI trading site. Here are a few of the most important to consider:

Regulation

Probably the most critical aspect of your AI trading platform research is the issue of regulatory oversight. You must only deposit funds with a reputable service provider, authorized by a premier licensing body.  An authorized and registered platform will comply with best practices, ensuring the security of your funds as well as the privacy and integrity of your account, by implementing Know Your Client (KYC) and Anti money Laundering (AML) procedures, while maintaining the separation of client and company accounts.

Low fees and commissions 

There are a few types of AI trading fees, and you need to be aware of exactly which fees your chosen platform charges and how competitive they are.

The spread is the most common trading fee, and refers to the difference between an asset’s buy price and sell price, so you will be looking for tight spreads, with a small price difference. 

Trade commissions are also frequently charged every time you make a purchase or a sale and it is generally calculated based on the size of the trade. 

You may also be charged deposit and withdrawal fees, which can differ depending on your chosen payment method.

Another potential charge is an overnight financing fee, which is charged when a leveraged trade is kept open overnight. Leverage is a loan from your broker and the overnight fee is calculated as a percentage of the amount you borrowed.

A wide variety of assets

The best AI trading bots will offer a broad range of financial instruments, from cryptocurrency and forex pairs, to stocks, shares, bonds, commodities and indices, and a large selection of each type.  

You may also wish to trade Contracts for Difference (CFD’s), which enable you to trade on the future price of an asset, without having to buy or store the actual physical financial instrument.

Analytical tools 

Top results come from the best data analysis. Use an AI trading platform that offers an array of fundamental and technical data sources, from breaking news to Bollinger Bands. The more information the bot can process, the more accurate its predictive capabilities.

Personal support

An automated platform that offers direct support around the clock is critical, if you are experiencing technical difficulties, or have concerns about the bot. The more channels being offered, like chat, mail, and phone, the better.

Here, at AlgosOne, ALGOS, our AI-based trading bot is incredibly user-friendly, doing all the trading on your behalf with no strategy programming required. The system adheres to the strictest regulatory standards and we charge no transaction fees at all. There is a 20% commission on successful trades although no commissions are charged for losing trades.

To predict market trends, ALGOS uses macro and micro news, accessing global data from a wide variety of traditional and alternative sources, in every language. It executes trades on stocks, commodities, forex, and crypto, using machine learning and deep neural networks to continuously sharpen its accuracy, minimizing risk and maximizing profits.

In this guide to AI trading for beginners, we’ve examined what an AI-based bot is, how it works, what the advantages and drawbacks are, and what to look for in a platform. To learn more about AI trading and a variety of other topics related to online finance, check out the AlgosOne blog.

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