Artificial intelligence has revolutionized the world of business. You can take advantage of a number of AI tools to find new ways to jumpstart your career or start a new business. One of the ways to make money through the use of AI technology is with algorithmic trading. This is a huge market driven by AI technology that is expected to be worth $19 billion by 2024.
What is algorithmic trading?
An entrepreneurial mindset and a knowledge of AI can help you unlock multitudes of ways to make money. Our highly connected world and digital economy make it much easier to accomplish your entrepreneurial goals. One such avenue for making money is algorithmic trading.
You probably already know all about trading, which is the activity of generating profits by making use of price movements of financial instruments. Automated trading (also known as “algorithmic trading”) works by using AI algorithms to perform trades. Algorithms are sets of programmed instructions to perform some tasks. As AI technology has improved, algorithmic trading has become more effective and given traders the opportunity to realize higher ROIs.
In algorithmic trading, rule-based trading instructions are automatically executed when certain conditions are met. You can also use machine learning technology to adjust your rules to better align with your investing goals. There is no need for a human trader to perform the trades, since artificial intelligence is capable to handling these processes on its own. But humans are still needed to set the rules according to which the algorithm works, even if AI can help adjust these rules over time.
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Most large financial institutions employ AI to execute algorithmic trading. In fact, the best hedge fund in the world specializes in algorithmic trading and is a pioneer in the field. Renaissance Technologies is a New York-based hedge fund that exclusively engages in algorithmic trading. Towards Data Science published an article titled How Renaissance beat the markets with Machine Learning, which emphasized the major benefits of AI in their trading. Medallion Fund, the flagship fund of Renaissance, gave an annualized return of 66 percent over the 30 years starting from 1988. This figure appears to have improved as AI helped boost their ROI.
Renaissance started algorithmic trading access to cutting-edge AI-driven computing tools was limited to a few. But today the most advanced tools are available to everyone at a fraction of the cost. This makes anyone able to emulate the algorithmic trading strategies performed by Renaissance technologies.
Advantages
Algorithmic trading is performed based, AI-driven approach to trading based on a predetermined set of rules. This gives the strategy a distinct set of benefits.
Eliminates the challenges of human psychology
Human psychology is the largest deterrent to consistent trading success. Even with a sound strategy, a human trader can bungle up trades due to the heuristics that exist solely in their mind. Algorithmic trading avoids that as trades are executed on predetermined rules.
The psychology of the trader is taken out of the equation of trading success by dehumanizing financial markets.
High-frequency trading
Human traders can perform only a limited number of trades. This is limited by the number of clicks and inputs she can provide in a brief time. But AI-based trading automatically executes trades. Algorithms can execute thousands of profitable trades every second. This is high-frequency trading which can only be done with algorithmic trading.
Accuracy
Fat-finger trades are trades that are caused by errors. This is common when human traders are actively involved in trading. AI-based trading eliminates any such possibilities and accurately performs trades every time. Algorithmic trading helps to avoid such mistakes.
Scanning
There are thousands of financial instruments that are actively traded across the world. A human trader cannot scan the complete universe of financial instruments. But this can be done with algorithms, and human traders are alerted only when favorable signals are identified.
Backtesting
Algorithms help to backtest trading strategies. This helps the trader to determine the soundness of the strategy before trades are executed. AI algorithms can run the strategy across vast amounts of past data to determine the efficacy of the strategy.
Reduced cost
The high speed enabled by algorithmic trading increases the number of transactions in a given time frame. This helps to reduce costs needed to achieve the same profit. Since AI algorithms automatically scan for trades and also execute trades, opportunity costs also can be offset.
How to make money?
Algorithmic trading is a lucrative field to make money. It is a broad field that enables profit generation in a wide variety of ways. You can choose to actively trade or provide support to trade. Some of the major avenues to make money with algorithmic trading are covered in the following sections.
Algorithmic trading
The most obvious approach is to use algorithmic trading. Thousands of profitable trades can be executed every second with sophisticated AI algorithms.
Actively engaging in algorithmic trading is monetarily rewarding. MetaTrader 5 is a popular platform that is accessible to everyone. You can easily set up an account, execute algorithms to perform strategies, and generate profit. All this can be done in a short time.
Even if you are a novice, MQL5.community provides adequate support to perform algorithmic trading. The marketplace of MQL5.com lets you buy trading signals and trading bots. You can just implement it to execute algorithmic trading. The ecosystem is helpful for newcomers to algorithmic trading trying to get started and generate profits.
But there are some barriers to entry for algorithmic trading. You need to have substantial capital to get started on lucrative trades. This could be a deterrent to many who are just getting started. Though algorithmic strategy is accurate, profits depend on a sound strategy. A faulty strategy can result in losses, and the trader will have to bear those losses. One has to be aware of the risks involved in algorithmic trading before executing those. One should also consider that there are many risk-free avenues to make money with an AI-driven approach trading.
Supporting algorithmic trading
Another avenue for earning money is by supporting algorithmic trading. This requires no capital to be invested and therefore, no downside risks. Individuals and firms engaging in algorithmic trading require various support services that provide access to powerful AI tools. You are essentially selling services to traders who have the financial ability but do not have the time or knowledge. Fulfilling the needs of such traders in itself is a lucrative business.
Selling signals
A predetermined set of rules can be used to know which assets to trade and how to trade them. You can identify successful signals and sell them on the marketplace to customers. You can ensure success by communicating the success rate and backtests of the signals. You can employ many business models to sell those signals. You can sell indicators for free and upsell them on value adds. You can also sell for a fixed fee upfront. If you are an active trader, you can generate additional revenue by selling profitable signals.
Trading bots
Trading bots execute trades automatically for you. They are capable of executing a wide range of strategies. You can create a trading bot, place it in the marketplace, and set a price. You will get the revenue every time someone buys your trading bot. The advantage is that you need to create the bot only once. After that, you will have recurring revenue without doing any effort. This is an easy way to earn passive income supporting algorithmic trading.
Cloud network
When you use your computer for general use, it does not consume the complete processing power available. Most of the time, the CPU is idle. You can sell this space power to interested users with the MQL5 Cloud Network. Others on the network can use your spare CPU power to develop mathematical models, perform backtests, and optimizations. You will get paid for the CPU power used. You can also use AI to make sure your computing resources are used more efficiently.
Custom orders
Users of MQL5.com have custom requirements for their algorithmic trading. You can fulfill those orders to make money. For this, you will need to know the basics of programming and markets. If you are knowledgeable and capable, you can earn a good living by fulfilling the custom orders of clients.
Algorithmic trading: A thousand ways to make money with AI
AI technology has revolutionized the field of financial trading. Algorithmic trading has a stronghold in modern financial markets. Today, anyone can access powerful techniques to make stellar revenue. The field is so wide and diverse that there are many avenues to make money. You can actively engage in algorithmic trading or support the activities. The beauty is that there are plenty of opportunities for experts and beginners. All you have to do is get started.