Pros and Cons of Using AI Stock Trading Software

Written by WealthVine Staff

With the advent of the global Covid-19 pandemic, the world saw a marked increase in retail stock traders. The emergence of Robinhood and other trading apps resulted from the abundance of free time and money afforded by the lockdowns and stimulus measures. This largess has spilled over into companies offering AI trading platforms.

As the popularity of retail trading apps continues its meteoric rise, so has the use of artificial intelligence stock trading software. These computer programs offer a helping hand to new investors who wish to automate their trading strategies. However, like any new technology, AI stock trading software comes with its fair share of pros and cons.

Novice investors and upstart day traders have gravitated towards retail trading apps offering zero-cost trades, as well as support software that provides AI-assisted stock trading.

But what are the benefits of AI trading platforms? And, what drawbacks do users of artificial intelligence stock trading software experience? Let’s explore the pros and cons of AI trading software.

Pro: Automation

One of the obvious benefits of robotic trading relates to automation.

Traders who implement AI software can set parameters that tell their retail trading app when to buy and sell equities, commodities, derivatives, and more. That way, users do not need to watch a stock’s price every day during trading hours to determine when to buy or sell.

The convenience of AI trading platforms represents a major draw to investors who find themselves short on time. It also helps organize the portfolio of users who make a large number of trades on a regular basis. However, this convenience can come at a cost for traders who allow it to lull them into a state of complacency.

Con: Complacency

Unfortunately, artificial intelligence trading apps do allow investors to set it and forget it. Users must monitor overall market conditions and react to major events just like manual traders do.

Robotic trading software works only as well as the code contained therein. So, significant shifts in financial outlooks and market-altering events can render AI trading platforms ineffective.

The code written by developers of AI stock trading software was based on market conditions, trends, and extrapolations that existed at the time. Once a sea change in investor sentiment occurs or a game-changing event takes place, the software may or may not have the capability to adapt.

A complacent user may experience short-term success, but handing over the reins to an AI trading platform represents a losing long-term strategy.

Pro: Artificial Intelligence Has No Feelings

Impassioned decision-making represents one of the main bugaboos for all investors. Impatience, stress, uncertainty, and other factors color the judgment of traders, leading to hasty decisions and poor returns.

An AI program’s lack of emotion offers traders an advantage over others because AI has no feelings. It’s artificial intelligence, not artificial emotion, after all.

Altering the functions, settings, and commands of an AI trading app to fit a defined strategy can go a long way towards preventing a user from making an emotional decision. However, users can still negate this benefit if they make changes based on stressors, misinformation, and other factors.

Con: Amplified Emotional Input

Even if an investor utilizes an AI trading platform as part of a rational trading strategy, it only takes one emotional outburst on the user’s part to throw the whole thing off.

Just as artificial intelligence stock trading software can maximize profit, it can also cause massive losses if misused. Traders who hastily change AI trading parameters may experience bigger losses.

Pro: AI Is Faster than Humans

Although buying at the very bottom of the market and selling at its peak represents a near-impossible feat, AI does a much better job than humans.

In a particularly volatile market experiencing a high volume of trades, humans may second-guess themselves. But AI software will execute a trade in an instant.

Con: Some Coding Required

Instantaneous trades that execute as soon as a stock reaches a user’s preferred price sounds ideal. But what if an investor has a change of heart moments before the trade occurs?

Unfortunately, it takes more time to write new code, alter settings, and make other adjustments than it does for a manual trader to change his or her mind.

Pro: Superior Monitoring

As mentioned, artificial intelligence executes trades much faster than humans. But it can also simultaneously monitor thousands of equities, derivatives, currencies, and more. This allows the software to identify opportunities much faster than checking each asset individually.

In other words, humans lag behind AI when it comes to analyzing a broad set of assets.

Con: Experienced Traders Needed

There’s no substitute for experience. Even the best AI trading platforms only perform as well as the person piloting them.

An AI trading app may have the best code on the market, but it won’t help an inexperienced trader with a bad strategy. If a user has little investing experience and no ability to code, financial disaster lurks around every corner.

Pro: Testing…Testing…

One often overlooked benefit of artificial intelligence stock trading software is that it allows investors to test their strategies without any deviation caused by human intervention. Traders often come up with market theories and test them on the stock exchanges. However, over time, the likelihood of adhering to the original plan decreases as various pressures mount.

With AI trading software, users can set up their strategies and let them run unimpeded. This provides a much clearer on whether a given strategy works when implemented without human interference.

Con: Over-optimization

As investors continue to tighten up their AI trading strategies, they run the risk of over-optimization.

Over-optimization refers to the process by which a user tailors his or her trading strategy based on past performance. Old data serves a useful purpose, but building an entire AI strategy around it without a forward-looking approach can result in poor performance.

Hi there! Do you use an AI trading platform? Tell us about your experience in the comments, and we’ll add your observations to our list during the next update.


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