Retail Traders: in AI we trust

After five months of bumpy declines, S&P 500 has entered the bear market; NASDAQ has been in the grip of a bear since April. Let's see how Deshe's AI analyst can help traders not to capitulate to the volatility and find value in a downturn. 

Retail traders are scared off by the bear market

In response to the market turmoil, many of the estimated 20 million amateurs who started trading in the past two years, have scrambled to shuffle their portfolios into more defensive positions, or have tapped the brakes on trading. As they see pictures like this on their screens, who can blame them for wanting to run for their lives?

More fear, less retail trader engagement

No wonder that Trading Platforms see much less position openings than last year; user engagement is weakening. 

S&P Global Market Intelligence, which analyzed data from Charles Schwab and Interactive Brokers, said retail trading activity was down 20% compared with the meme-stock frenzy of 2021. Popular retail brokerages report fewer active users: Robinhood, the choice of many amateurs who jumped in early in the pandemic, said that it had 15.9 million active users in April, down from 22.5 million in 2021. And that was even before the crashes of the last three months! In May, TD Ameritrade reported that its clients became net sellers of equities for the first time since December ‘21.

There’s no magic bullet, but there are ways to support traders

Although Trading Platforms can not improve the economy or the market sentiment to encourage users to trade more, there are ways to help the situation. 

First of all, basic human psychology makes us fear the unknown. Which means that closing the information gaps can mitigate fears and reassure traders.

However, the information has to come from a source that traders trust. Another news site, YouTube channel or sell-side analyst opinion won’t help much, especially after these “investing pros” have been wrong so many times recently; their opinions just add to the noise. If a trader has to do the research on who to trust before he does the research on what stock to buy, then there's little chance he will ever get to stock trading.

AI stock analysis: people trust machines more than humans

According to Oracle’s 2021 study, people now trust machines more than humans, including themselves, to manage their money and make financial decisions. There is a lot to be gained in decisively moving towards AI, for both closing the information gaps and supporting investment decisions; the level of decisiveness will fundamentally shape the growth trajectory of Trading Platforms’ user base.

Traders expect to get help from Artificial Intelligence

AI won’t be the “silver bullet” for any given case, but it can help Trading Platforms obtain a competitive edge as they help their clients to automate the routine tasks of searching for data, analyzing financial statements and such. AI tools help traders make more informed decisions, thus lowering the market’s entry barriers. In addition, Artificial Intelligence assists with risk management in investing as it reduces the influence of the human factors (bias, emotions, irrational decisions). As Trading Platforms help their clients, they help themselves to increase engagement and trading volumes.

Trading platforms that incorporate AI tools for screening, information and decision-making support, report that these tools increase the number of positions opened by 15% to 30%. They also say that the traders’ use of AI on their platform leads to a sevenfold increase in the chances of their opening a position. AI analytic tools provide an endless source of relevant information users can trust - and traders now expect Trading Platforms to incorporate these tools to make their life easier.