Can recent technological advances in artificial intelligence be used improve your risk management processes?
This article was written by Ashley Aberneithy, CEO of Analytic AI.
It’s commonplace for risk managers to group their portfolio into risk books. The process of isolating risk within their portfolio involves risk managers creating distinct groups for different types of trader. The risk manager might place large size traders into one group, whereas high frequency traders may go into another group.
The risk manager then hedges each group independently, i.e. the high frequency traders might be best served by an automated hedging process (STP) whereas certain traders might just be shut down or flagged as fraudulent. How accurately these groupings reflect the characteristics of the firm's portfolio directly impacts a firm's bottom line and financial institutions dedicate a large amount of time into analyzing traders and building these classification groupings.
Has a trader exhibited certain characteristics within their past trading behavior?
Many risk managers ask the question ‘has a trader exhibited certain characteristics within their past trading behavior that can be used to predict the best classification for them going forwards?’ but the main problem with this approach is that (a) the accuracy of this method is questionable (b) this analysis is very time consuming and (c) due to the large number of inputs the analysis highly subjective and prone to error.
In many cases risk managers might just not even have enough data about the trader to make these decisions.
Artificial intelligence solutions aim to ‘quantitatively assess’ common heuristics and behavioural traits which exist amongst financial market traders
Machine learning and AI based algorithms are more effective at modeling risk groupings compared with their human counterparts, however they are not a silver bullet; these algorithms are extremely complex to build and it’s common for them to work on historical data, but fail when faced with new data. Building these solutions also requires specialist skillsets in machine learning and quantitative Risk Management; skills, which are in short supply and high, demand.
When I speak to firms it’s not uncommon for them to complain about spending months, even years, with varying degrees of success, researching these automated solutions for optimizing their risk groups. There is hope however! We are starting to see an emergence of cost effective artificial intelligence within the financial space and some specialist vendors providing both out-of-the-box solutions as well as more customized solutions to fit the needs of specific firms.
How do you know using this type of automated solution is right for your firm? Many of these firms offer backtesting solutions which allow firms to forecast how these algorithms can perform on your data going forwards. The numbers provided might be enough for you decide to make the switch, or at least augment your existing classification process with an AI based solution.
The other main driver is Scalability, if you need a solution which can scale no matter the trade volumes, 24 hours a day, then moving to an algorithmic solution could be a good solution for your firm.
This article was written by Ashley Aberneithy, CEO of Analytic AI.
It’s commonplace for risk managers to group their portfolio into risk books. The process of isolating risk within their portfolio involves risk managers creating distinct groups for different types of trader. The risk manager might place large size traders into one group, whereas high frequency traders may go into another group.
The risk manager then hedges each group independently, i.e. the high frequency traders might be best served by an automated hedging process (STP) whereas certain traders might just be shut down or flagged as fraudulent. How accurately these groupings reflect the characteristics of the firm's portfolio directly impacts a firm's bottom line and financial institutions dedicate a large amount of time into analyzing traders and building these classification groupings.
Has a trader exhibited certain characteristics within their past trading behavior?
Many risk managers ask the question ‘has a trader exhibited certain characteristics within their past trading behavior that can be used to predict the best classification for them going forwards?’ but the main problem with this approach is that (a) the accuracy of this method is questionable (b) this analysis is very time consuming and (c) due to the large number of inputs the analysis highly subjective and prone to error.
In many cases risk managers might just not even have enough data about the trader to make these decisions.
Artificial intelligence solutions aim to ‘quantitatively assess’ common heuristics and behavioural traits which exist amongst financial market traders
Machine learning and AI based algorithms are more effective at modeling risk groupings compared with their human counterparts, however they are not a silver bullet; these algorithms are extremely complex to build and it’s common for them to work on historical data, but fail when faced with new data. Building these solutions also requires specialist skillsets in machine learning and quantitative Risk Management; skills, which are in short supply and high, demand.
When I speak to firms it’s not uncommon for them to complain about spending months, even years, with varying degrees of success, researching these automated solutions for optimizing their risk groups. There is hope however! We are starting to see an emergence of cost effective artificial intelligence within the financial space and some specialist vendors providing both out-of-the-box solutions as well as more customized solutions to fit the needs of specific firms.
How do you know using this type of automated solution is right for your firm? Many of these firms offer backtesting solutions which allow firms to forecast how these algorithms can perform on your data going forwards. The numbers provided might be enough for you decide to make the switch, or at least augment your existing classification process with an AI based solution.
The other main driver is Scalability, if you need a solution which can scale no matter the trade volumes, 24 hours a day, then moving to an algorithmic solution could be a good solution for your firm.
Cheetah Fund Investors Lose $9 Million in Alleged Fraudulent Scheme
Network, Learn, Grow | FMAS:24
Network, Learn, Grow | FMAS:24
Get ready to mark your calendars for FMAS:24, returning this May! Take a quick glimpse of what awaits at the Sandton Convention Centre in Sandton, South Africa from May 20-22, 2024.
Don't miss out on this 5-second invite packed with energy and urgency!
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Get ready to mark your calendars for FMAS:24, returning this May! Take a quick glimpse of what awaits at the Sandton Convention Centre in Sandton, South Africa from May 20-22, 2024.
Don't miss out on this 5-second invite packed with energy and urgency!
Secure your free ticket now 🔗 https://events.financemagnates.com/yQx0l?utm_source=youtube&utm_campaign=fmas-is-back&utm_medium=video&RefId=FMAS24+Video+Ad+%5B1%5D
#fmas24 #fmas #fmevents #financeinafrica #traders #investors #affiliates #forexTraders #investmentOpportunities #B2BNetworking #finTech #Innovations #TradingCommunity #BusinessOpportunities #AfricanBusiness #Johannesburg #southafrica
📣 Stay updated with the latest in finance and trading!
Follow FMevents across our social media platforms for news, insights, and event updates. Connect with us today:
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Here's a sneak peek into the FMAS:24 vibrant atmosphere! Join us at Africa’s premium financial event for a transformative experience that combines the best of finance and technology.
From May 20-22, 2024, the Sandton Convention Centre in Sandton, South Africa, will be the hub for over 3,500 attendees to engage in unparalleled networking opportunities, learn from over 150 industry-leading speakers, and explore innovations from 120+ exhibitors.
Secure your free ticket now 🔗 https://events.financemagnates.com/yQx0l?utm_source=youtube&utm_campaign=fmas-is-back&utm_medium=video&RefId=FMAS24+Video+Ad+%5B1%5D
#fmas24 #fmas #fmevents #financeinafrica #traders #investors #affiliates #forexTraders #investmentOpportunities #B2BNetworking #finTech #Innovations #TradingCommunity #BusinessOpportunities #AfricanBusiness #Johannesburg #southafrica
📣 Stay updated with the latest in finance and trading!
Follow FMevents across our social media platforms for news, insights, and event updates. Connect with us today:
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Don't miss out on our latest videos, interviews, and event coverage. Subscribe to our YouTube channel for more!
Here's a sneak peek into the FMAS:24 vibrant atmosphere! Join us at Africa’s premium financial event for a transformative experience that combines the best of finance and technology.
From May 20-22, 2024, the Sandton Convention Centre in Sandton, South Africa, will be the hub for over 3,500 attendees to engage in unparalleled networking opportunities, learn from over 150 industry-leading speakers, and explore innovations from 120+ exhibitors.
Secure your free ticket now 🔗 https://events.financemagnates.com/yQx0l?utm_source=youtube&utm_campaign=fmas-is-back&utm_medium=video&RefId=FMAS24+Video+Ad+%5B1%5D
#fmas24 #fmas #fmevents #financeinafrica #traders #investors #affiliates #forexTraders #investmentOpportunities #B2BNetworking #finTech #Innovations #TradingCommunity #BusinessOpportunities #AfricanBusiness #Johannesburg #southafrica
📣 Stay updated with the latest in finance and trading!
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Join 3500+ Attendees at FMAS:24 | Africa's Premium Financial Event
Join 3500+ Attendees at FMAS:24 | Africa's Premium Financial Event
Looking to expand your network in #Africa? Join 3500+ attendees at FMAS:24, where online trading, fintech, payments, and crypto meet! Connect with industry leaders and innovators for an unmatched networking experience.
20-22 MAY 2024
Sandton Convention Center, Sandton, South Africa
Register now to secure your spot: https://bit.ly/3JbUpCK
#fmas #fmas24 #fmevents #networking #finance #africa
📣 Stay updated with the latest in finance and trading!
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Looking to expand your network in #Africa? Join 3500+ attendees at FMAS:24, where online trading, fintech, payments, and crypto meet! Connect with industry leaders and innovators for an unmatched networking experience.
20-22 MAY 2024
Sandton Convention Center, Sandton, South Africa
Register now to secure your spot: https://bit.ly/3JbUpCK
#fmas #fmas24 #fmevents #networking #finance #africa
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Join 3500+ Attendees at FMAS:24 - Africa's Premium Financial Event
Join 3500+ Attendees at FMAS:24 - Africa's Premium Financial Event
Looking to expand your network in #Africa?
Join 3500+ attendees at FMAS:24, where online trading, fintech, payments, and crypto meet! Connect with industry leaders and innovators for an unmatched networking experience.
20-22 MAY 2024
Sandton Convention Center, Sandton, South Africa
Register now to secure your spot: https://bit.ly/3JbUpCK
#fmas #fmas24 #fmevents #networking #finance #africa
Looking to expand your network in #Africa?
Join 3500+ attendees at FMAS:24, where online trading, fintech, payments, and crypto meet! Connect with industry leaders and innovators for an unmatched networking experience.
20-22 MAY 2024
Sandton Convention Center, Sandton, South Africa
Register now to secure your spot: https://bit.ly/3JbUpCK
#fmas #fmas24 #fmevents #networking #finance #africa
Where the Prop Trading Industry Goes from Here | Finance Magnates Podcast
Where the Prop Trading Industry Goes from Here | Finance Magnates Podcast
Explore the tumultuous world of prop trading in this Finance Magnates podcast episode, featuring insights from Head of Axi Select, Greg Rubin.
We're discussing the challenges and shifts caused by MetaQuotes' pivotal decisions affecting MT4 and MT5 users, and how Axi Select offers a unique, realistic path to professional trading, steering clear of traditional prop firm pitfalls.
Tune in for expert analysis on the future of trading and innovative funding models.
The Axi Select programme is only available to clients of AxiTrader Limited. CFDs carry a high risk of investment loss. In our dealings with you, we will act as a principal counterparty to all of your positions. This content is not available for AU, NZ, EU and UK residents. For more information, refer to our Terms of Service. Standard trading fees apply.
This content is provided solely for general informational purposes and should not be construed as financial product advice or an investment recommendation. It has been prepared without considering your personal circumstances.
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Explore the tumultuous world of prop trading in this Finance Magnates podcast episode, featuring insights from Head of Axi Select, Greg Rubin.
We're discussing the challenges and shifts caused by MetaQuotes' pivotal decisions affecting MT4 and MT5 users, and how Axi Select offers a unique, realistic path to professional trading, steering clear of traditional prop firm pitfalls.
Tune in for expert analysis on the future of trading and innovative funding models.
The Axi Select programme is only available to clients of AxiTrader Limited. CFDs carry a high risk of investment loss. In our dealings with you, we will act as a principal counterparty to all of your positions. This content is not available for AU, NZ, EU and UK residents. For more information, refer to our Terms of Service. Standard trading fees apply.
This content is provided solely for general informational purposes and should not be construed as financial product advice or an investment recommendation. It has been prepared without considering your personal circumstances.
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