Artificial intelligence (AI) has become an integral part of modern finance, transforming how institutions analyze data, manage risk, and execute trades. By leveraging machine learning algorithms and natural language processing, AI systems can identify complex patterns in large financial datasets, forecast market movements, and detect anomalies that might signal fraud or structural inefficiencies.
As financial data grows in both volume and complexity, AI enables more adaptive, data-driven approaches, bridging the gap between quantitative modeling and real-time decision processes. Consequently, AI has a measurable impact on the market. Reference [1] examined the impact of AI on trading and risk management, performing both quantitative and qualitative analyses. The author pointed out,
As we have previously discussed, the core footprint of algorithmic trading and the entire spectrum of the financial markets, in one way or another, has been influenced by Artificial Intelligence (AI) technology. AI has profoundly changed the efficiency of the market, the execution of trading orders and the accuracy of trading decisions during the real-time analysis of available data, which has improved to an unprecedented level. Due to the advances in technology like AI, liquidity and the overall operations of the market have vastly improved because unlike humans, AI systems are able to outperform in trade execution speed and precision (Agarwal et al., 2021). AI also improves the accuracy of prediction that assists traders and investors in strategising and managing risks more effectively. Nevertheless, the integration of AI systems within trading structures has some consequences. Even if the implementation of AI technology comes with a lot of advantages, the stability of the market adds a new layer of risk. Arguments regarding flash crashes, categorised as a sudden drastic price decline due to an algorithm blunder, and systemic risk—the collapse of one AI system triggering an avalanche effect within a network of interlinked AI systems—pose a concern (Agarwal et al., 2021).
In short, AI has an overall positive impact on the market, particularly from the perspectives of execution and liquidity. However, it can also increase risks, as evidenced by the higher volatility associated with AI.
Let us know what you think in the comments below or in the discussion forum.
References
[1] Neeraj Kahol Sharma, Assessing the AI Impact on Financial Markets through Algorithmic Trading, Journal of Basic Science and Engineering, Vol. 22, No. 1, (2025)
Originally Published Here: Impact of Artificial Intelligence on Financial Markets: a Quantitative and Qualitative Analysis
source https://harbourfronts.com/impact-artificial-intelligence-financial-markets-quantitative-qualitative-analysis/
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