Welcome to the world of artificial intelligence and investing, where Generative AI is transforming the financial landscape. In this article, we’ll reveal ten real-life use cases that showcase how GenAi is reshaping the way we invest and manage our finances. But before we dive into these intriguing examples, let’s take a moment to reflect on the progress we’ve achieved so far.
The Context
Generative AI (GenAi) is not a brand-new idea, but it has taken us about 60 years to develop innovations that can be practically used.
The roots of GenAI can be traced back to the concept of machine learning. In the 1960s, Joseph Weizenbaum created the first generative AI as part of the Eliza chatbot. He and other scientists explored the idea of using algorithms to generate new data.
Fast forward to today—the overwhelming public reaction and the widespread recreational use of Generative AI prove that the excitement about this technology is not going to fade away anytime soon. This might very well be the start of a GenAi bubble.
At PlanB, our curiosity extends beyond just the investment prospects presented by this new development. We’re also enthusiastic about digging into the practical applications of Generative AI, which have the potential to shape the future evolution of a stock market legacy spanning four centuries.
To keep you ahead in the financial game, here are ten practical ways Generative AI can be used in the world of finance
1. Predictive Analytics
Most stock traders mainly use statistical methods to analyze and make sense of large amounts of data. This data is crucial for financial analysis and long-term investing strategies. For example—there are statistical measures like standard deviation, R-squared, and the Sharpe ratio that help assess how individual stocks perform.
Now, AI comes into play to make stock market predictions more efficient. Instead of relying solely on manual efforts, GenAi can analyze vast amounts of historical data by itself, spotting patterns and trends that might be difficult for humans to see. This is done through machine learning algorithms like neural networks and decision trees, which learn from past data to make predictions.
Some companies like Sigmoidal, Trade-Ideas, and Signal Stack are already using generative AI (GenAi) for this purpose. They offer personalized AI-powered prediction models, trained specifically for certain assets, timeframes, and prediction metrics.
However, it’s crucial to remember that stock market predictions are inherently uncertain, so AI should be used alongside other methods and your expert analysis to make well-informed investment decisions.
2. Portfolio Optimization
Optimizing a financial portfolio is like handling all the buttons in an airplane cockpit, and AI can be a valuable tool to manage and fine-tune stock portfolios efficiently. It does this by analyzing a huge amount of data and then using that analysis to make smart investment decisions.
Imagine an AI-powered system that manages your stock portfolio. It can use natural language processing and machine learning algorithms to read and understand a variety of variables. By doing this, it can spot important market trends, assess the overall sentiment, and identify key indicators that might influence stock prices.
Based on all this analysis, the AI system can suggest a portfolio of stocks that matches your risk tolerance and investment goals. It’s like having a personalized advisor that understands your preferences and helps you make the best investment choices.
For instance—in India, there’s a platform called Jarvis Invest, which is the country’s first AI-based stock and equity advisor. It assists investors in selecting the right stocks and equities for their investment portfolios.
Another startup called Axyon AI helps asset managers diversify and generate successful investment strategies by incorporating AI solutions into their investment processes.
3. Risk Assessment
Investing is all about managing risks and using GenAi to spot and manage potential risks in investments is a huge advantage for both financial institutions and individual investors.
With the help of artificial intelligence, we can analyze massive amounts of data from various sources in real-time. By doing this thorough analysis, AI algorithms can quickly pick up on early signs of possible risks, like market downturns, weaknesses in specific industries, or uncertainties in the world.
When investors can identify these risks early on, it allows them to be proactive and make smart decisions.
If you use this technology, you can easily change your strategies, spread out your investments, and protect yourself from potential losses. What’s really cool is that AI keeps learning and adjusting, so it stays on top of the always-changing market.
This means you can get helpful information from AI and make your investments stronger overall.
4. Trading Automation
Back in the 1970s, algorithmic trading was introduced, which led to the rise of computerized trading systems in the American financial markets. Then, in 1976, the New York Stock Exchange introduced a system that made electronic trading globally accepted among traders.
Today, AI-powered algorithms are transforming how algo-trading is conducted in financial markets. These advanced algorithms use artificial intelligence to analyze real-time market data, historical trends, and other relevant information. With this analysis, they can quickly spot trading opportunities and execute orders at the best prices and timings.
What’s impressive in this use case about these AI algorithms is their speed and efficiency. Unlike traditional manual trading, GenAi can process vast amounts of data instantly and respond to market changes in milliseconds, giving investors a competitive advantage.
5. Fraud Detection
Finance frauds can hurt honest investors because they can cause big financial losses and make people lose trust in the financial system. But there’s hope!
Using AI to spot and stop fraud in financial transactions can make a big difference. AI uses smart algorithms to study massive amounts of transaction data and find patterns that might show someone is trying to do something dishonest.
These algorithms can catch things like— weird transaction patterns, fake identities, or unauthorized access, and alert financial institutions right away. This way, they can stop fraud before it causes any damage. It’s like having a super smart and vigilant watchdog that keeps an eye out for anything fishy, making sure honest investors stay safe and protected.
6. Credit Scoring
In the financial world, they don’t pay much attention to your personality or how you come across. To them, you’re simply seen as a number. But it’s important to know that numbers can also be influenced by biases.
That’s where AI comes in handy. Many businesses now use AI to look at credit data and give people and companies credit scores.
Instead of relying on manual judgment, AI uses smart algorithms to consider things like how you’ve paid back loans in the past, how much debt you have, and how you use credit. This way, it makes a fair and unbiased evaluation of your creditworthiness. This helps lenders and financial institutions make better decisions when offering credit to individuals and businesses.
With AI, everyone gets fairly judged based on their financial history—not someone’s personal opinion. It levels the playing field and gives everyone a fair chance to access the amount of credit based on their track record.
7. Personalized Financial Advice
You may have heard of Robo-advisory, which is a new way of providing investment advice and managing portfolios using AI. It’s changing how financial advisory services work. It all started in 2010 when a young entrepreneur named Jon Stein launched the first robo-advisor called Betterment. Since then, robo-advisors have become really popular.
These AI-powered robo-advisors use their smart algorithms to study what investors want to achieve with their money, how much risk they’re comfortable taking, and what kind of investments they prefer. Then, based on this information, they suggest personalized investment strategies and create diversified portfolios that match each client’s needs.
The cool thing about robo-advisors is that they automate portfolio management. They can keep an eye on your investments all the time and quickly adjust them if the market changes. Plus, using AI makes these services more affordable—so now more people and institutions can access sophisticated financial advice that was once only available to wealthier clients.
It’s like giving everyone a fair shot at better investment options.
8. Market Sentiment Analysis
Market sentiment analysis is a powerful application of AI that uses natural language processing to analyze news articles and social media posts. By doing this, it can understand and interpret people’s opinions, emotions, and attitudes toward the market.
For investors and traders, this kind of analysis can provide valuable insights into how the market is feeling and reacting to certain events or news. It helps them gauge whether the sentiment is positive, negative, or neutral, and make more informed decisions based on this understanding.
By leveraging AI for market sentiment analysis, investors can stay ahead of trends and potentially capitalize on market shifts, ultimately improving their investment strategies.
9. Enhancing Investment Strategies
When it comes to investing, there are so many strategies to consider, and it can put a lot of pressure on the human brain to make the right decisions. But GenAi can change the game. It has this incredible ability to create super-smart algorithms that can make investment strategies and decisions much better.
Think of GenAi as a super-smart detective. It can analyze—a ton of financial data, past market trends, and economic indicators to find important patterns and insights. Then, it uses these patterns to make more accurate predictions about what might happen. This can help investors make smarter moves, manage risks more effectively, and potentially earn more from their investments.
The best part is that GenAi keeps learning and adapting as the market changes. It keeps investors updated with real-time information, helping them stay ahead of the competition.
By using GenAi, investors can make decisions based on solid data, giving us an edge over others and potentially making our investments even more successful. It’s like having a super-smart assistant to guide investors through the world of investing.
10. Blockchain Applications
Last but not least, GenAi can be super helpful in making blockchain-based financial transactions safer and smoother.
With AI’s smart abilities, blockchain networks can be better at spotting and stopping any fraud, making sure that all transactions are secure and people’s money is protected. AI algorithms can quickly identify any threats or strange patterns in real-time. This means that if there’s any security issue, it can be addressed right away, keeping financial information safe.
Also, AI can make transactions happen faster and more efficiently—which is especially important when there are lots of transactions happening on the blockchain. Combining AI with blockchain technology has a lot of potential to create a better and safer financial system for everyone.
Conclusion
In conclusion, Generative AI (GenAi) has many useful applications in the world of investing. In the past, these tools were mainly available to big institutional investors with lots of money. But now, they are becoming more affordable and accessible to everyone, which is changing how people invest.
However, we should be careful about possible risks. GenAi’s outputs can influence the markets, and the systems may use that data to generate more responses automatically, without any human control. This could create a tricky situation where the system keeps feeding on itself—leading to outcomes we don’t want.
As AI systems continue to improve and people get more used to using them in everyday life, there’s still a lot to learn and explore.
The future seems bright, and we really hope you liked reading our latest top 10 selection.
Invest wisely!
