AI and algorithmic trading will redefine digital broking playbook

In the digital age, customers have little patience and expect faster responses. The evolution of digital stock trading platforms is based on that insight and has fundamentally redefined how traders engage with capital markets. Facilities such as rapid order execution, diversified investment opportunities, advanced research tools, and real-time portfolio tracking, digital broking platforms have made digital broking the preferred mode of market participation for traders.

Having said that, the digital trading landscape is close to another transformation which will be driven by accelerated artificial intelligence (AI) adoption and algorithmic trading. As digital trading moves towards more automated, efficient, and data-driven operations, the next phase of digital broking will be defined by heightened levels of efficiency, scalability, and customer experience.

The Era of AI-powered Trading

The shift towards AI-driven trading is steadily gaining momentum. Thanks to AI-powered analytics and machine learning models, traders  are now in a better position to identify patterns, predict market trends, and optimize trading strategies with precision. Algorithmic trading, in particular, is redefining execution by automating trade orders based on intricate mathematical models, reducing latency, and enhancing liquidity.

SEBI has emphasised on the difference in performance between individual traders and institutional players like FPIs, who leverage algorithmic trading for consistent profits. Therefore, advancements in AI-driven algorithms are empowering individual traders, offering a level-playing field to the F&O segment and enabling them to make more informed and data-driven decisions.

The market trends also capture the technological progress. The global algorithmic trading market valued at $15.55 billion in 2021 is projected to grow at a compound annual growth rate (CAGR) of 12.2% between 2022 and 2030. The projection underlies the  growing reliance on AI-driven strategies. This evolution is gaining pace in India as well. As per a recent report by the Association of National Exchanges Members of India (ANMI), 83.6% of stockbrokers planned to increase their IT budgets in 2024-25² to integrate AI and algorithmic trading into their operations. The goal is to enhance both efficiency and customer engagement.

Revolutionizing Customer Experience

To both retail and institutional traders, AI-driven digital broking offers a range of features such as personalised trading recommendations, predictive analytics, and automated portfolio rebalancing. These features ensure that trades can make informed decisions easily.

By leveraging processed customer data from Machine Learning models, AI is gradually becoming hyper personal, providing personalised alerts to the traders based on their search and investment behaviours. Additions such as advanced-data infrastructure, customer behavioural models, real-time analysis, customer behavioural models, etc. will become integral parts of the AI-driven customer experience.

How AI is shaping the future of trading

As we move forward, we are entering a phase where behavioural intelligence will redefine how traders will interact with the markets. AI is poised to revolutionize broking by tapping into investor psychology.  AI can help in detecting cognitive biases like loss aversion or recency bias. This bias has long been driving irrational decisions like panic selling during downturns. AI instead  instantly analyzes the trading behaviour and intervenes of a trader and guides her/him with real-time, data-driven suggestions.

This isn’t just about smarter stock picks. It is about creating emotional intelligence in the trading journey. AI will fine-tune the portfolio to align it with the emotional comfort and risk tolerance of the trader so that she/he does not lose sight of the long-term goals, no matter how volatile the market becomes. Market herding and panic-driven moves will eventually reduce with the advent of AI. AI will pave the way for building a more stable and confident trader base. The new-age tools will help traders make rational, informed decisions. AI will reshape the broking industry, creating a stronger, more resilient stock market that will attract and empower traders and grow.

AI-first approach to drive efficiency

The AI-first approach actually reflects the underlying customer-first outlook of the digital broking platforms. This, in a way, will boost execution agility by driving the adoption of AI-driven data analytics and machine learning for risk assessment as well as integrating high-frequency trading algorithms. At the same time, compliance with the evolving regulatory frameworks and building robust cyber security measures will be crucial for maintaining traders' confidence and platform integrity.

As digital broking enters the next phase of growth, the convergence of AI and algorithmic trading will define the digital broking landscape. Adoption of the new-age technologies will continue to drive operational efficiency as well as set new benchmarks for customer experience, transparency, and market innovation. The future of digital trading is unfolding gradually and the journey has just begun.

By Gagan Singla, Managing Director - BlinkX at JM Financial