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January 13, 2023

How to Build an Artificial Intelligence Trading Platform

This article will provide valuable insights and practical advice on how to build an AI trading platform. Check it out!

Mitya Smusin

Chief Executive Officer

Artificial intelligence (AI) has revolutionized the world of online trading, providing traders with the ability to make more accurate and informed decisions, and faster. In this article, we will explore the process of building an AI trading platform, from the initial planning and design stages to the development and testing of the platform. We will also discuss the challenges and considerations that need to be addressed when building an AI platform, and provide guidance on how to choose the right software development vendor. If you are a trader looking to build your own platform, this article will provide valuable insights and practical advice on how to build a successful AI trading platform.

Trading & AI: A Powerful Duo? 

The trading industry has always been driven by data and technology, and in recent years, artificial intelligence (AI) has emerged as a powerful tool for analyzing and making sense of the vast amounts of information that traders must navigate on a daily basis.

From high-frequency trading algorithms to predictive analytics, AI is being used in a wide range of applications within the trading industry. It can help traders identify trends and patterns in real-time, optimize portfolios, and make more informed decisions about when to buy and sell assets.

One key area where AI has made a significant impact is in the realm of market analysis and prediction. By analyzing vast amounts of data, including historical price data, news articles, and social media posts, AI algorithms can help traders get a better sense of where the market is headed and identify opportunities for profit.

Another area where AI is being used in the trading industry is in the automation of certain processes. For example, some trading firms are using AI to automate the creation of reports and other documents, freeing up traders to focus on more high-level tasks.

There are certainly challenges and risks associated with the use of AI in the trading industry, including the potential for biased algorithms and the need for proper oversight and regulation. However, the potential benefits of AI for traders are undeniable, and it is likely that we will see even more widespread adoption of these technologies in the years ahead.

Trading and AI

AI Trading 101

In this section, we’re diving deep into the topic of AI in the trading industry, as well as the difference that it has made for the whole industry. 

AI as a game-changer for the trading industry 

Traders have always relied on data and technology to make informed decisions, but the advent of artificial intelligence (AI) has changed the game in a number of ways. While AI is not a replacement for human traders, it has the potential to significantly enhance their abilities and improve the efficiency of the trading process.

One key difference between trading with and without AI is the amount of data that traders can process. Without AI, traders must rely on their own analysis and intuition to make decisions, which can be time-consuming and may not always be accurate. With AI, however, traders can analyze vast amounts of data in real-time, helping them identify trends and patterns that may not be immediately apparent to the human eye.

Another difference is the speed at which trades can be executed. Without AI, traders must manually place orders and wait for them to be filled, which can take time and may not always be possible in fast-moving markets. With AI, trades can be executed almost instantly, allowing traders to take advantage of market movements as they happen.

There are different types of AI that are used in the trading industry: 

  1. Machine learning algorithms: These algorithms allow traders to analyze vast amounts of data and identify trends and patterns that may not be immediately apparent to the human eye. By learning from historical data, machine learning algorithms can make predictions about future market movements and help traders make more informed decisions.

  2. Natural language processing (NLP): NLP algorithms allow traders to analyze and interpret unstructured data, such as news articles and social media posts, to gain insights into market sentiment and trends.

  3. Predictive analytics: These algorithms use statistical modeling and machine learning techniques to make predictions about future market movements. By analyzing historical data and identifying patterns and trends, predictive analytics algorithms can help traders anticipate market movements and make more informed decisions.

  4. High-frequency trading algorithms: These algorithms are used to execute trades at extremely high speeds, taking advantage of small price movements and discrepancies in the market. High-frequency trading algorithms rely on complex mathematical models and advanced computing power to make rapid trades.

  5. Automated decision-making: Some trading firms are using AI to automate certain processes, such as the creation of reports and other documents, and automated trading. By automating these tasks, traders can focus on more high-level tasks and make more informed decisions.

Types of AI

Risks and limitations of AI in trading to consider

Of course, there are also potential risks and challenges associated with the use of AI in trading. It's important for traders to understand the limitations of these technologies and to be aware of the potential for bias and errors. However, with the proper safeguards in place, AI has the potential to significantly improve the efficiency and effectiveness of trading operations. 

  1. Bias: AI algorithms are only as good as the data used to train them, and if the data is biased, the algorithms will be as well. It's important to ensure that the data used to train AI algorithms is representative and diverse to avoid biased results.

  2. Accuracy: AI algorithms are not perfect, and there is always the potential for errors or mistakes. It's important to regularly test and validate the accuracy of AI algorithms to ensure that they are making reliable predictions.

  3. Regulation: The use of AI in trading is still a relatively new and rapidly evolving area, and there are not yet many clear guidelines or regulations in place. It's important for traders to be aware of any relevant laws and regulations and to ensure that they are complying with them.

  4. Limited understanding: AI algorithms are designed to analyze and interpret data, but they do not have the same level of understanding or reasoning ability as humans. This can limit their ability to make complex, nuanced decisions and may require human oversight and intervention.

  5. Dependence: Traders who rely heavily on AI may become too dependent on these technologies and may lose their ability to make informed decisions on their own. It's important to strike a balance between using AI as a tool and maintaining the skills and expertise needed to make informed decisions.

However, with the proper safeguards in place, AI has the potential to significantly improve the efficiency and effectiveness of trading operations. We’ll talk about the advantages of using AI in the next section. 

Risks of AI trading

The advantages of using AI in trading platform development 

You might already have a trading platform or be thinking about developing a new one. You might ask yourself: why do I need to consider building an AI trading platform? There are at least 5 reasons for it: 

  1. Improved decision-making: By analyzing vast amounts of data in real-time, AI algorithms can help traders identify trends and patterns that may not be immediately apparent to the human eye. This can help traders make more informed decisions about when to buy and sell assets and optimize their portfolios.

  2. Increased efficiency: AI can automate certain tasks and processes, such as the creation of reports and documents, freeing up traders to focus on more high-level tasks. This can help trading firms operate more efficiently and effectively.

  3. Improved risk management: AI algorithms can analyze data and identify potential risks, helping traders to better manage their risk exposures. By identifying and mitigating potential risks, traders can protect their assets and minimize losses.

  4. Enhanced speed: AI algorithms can execute trades almost instantly, allowing traders to take advantage of market movements as they happen. This can be especially important in fast-moving markets where every second counts.

  5. Reduced costs: Some trading teams are using AI to automate the creation of reports and other documents, freeing up traders to focus on more high-level tasks. 

Overall, the use of AI in trading platforms has the potential to significantly improve the efficiency and effectiveness of trading operations. 

Illustration Advantages of AI trading

Take These Two Steps Before Jumping Into Development 

These 2 steps are tremendously helpful and important to create a development process that is data-driven and evidence-based. It can also help in reducing the costs of AI platform development. So, let’s learn more. 

Develop an idea of your future AI trading platform 

The development of a trading platform is a complex and time-consuming process, and it's important to do thorough research before diving in. Here are a few key considerations to keep in mind:

  1. Market needs: It's important to understand the needs and demands of the market you are targeting. What types of assets are in demand, and what are the key features and functionality that traders are looking for in a trading platform? By understanding the needs of your target market, you can ensure that your platform is well-suited to meet those needs.

  2. Competition: It's also important to research your competition and understand what other trading platforms are already out there. What features and functionality do they offer, and how are they positioning themselves in the market? By understanding the competitive landscape, you can position your platform in a way that differentiates it from the competition.

  3. Regulatory environment: Trading platforms are subject to various laws and regulations, and it's important to understand the legal and regulatory requirements that you will need to meet. This includes understanding any licensing or registration requirements, as well as any rules and guidelines related to data privacy and security.

  4. Technical considerations: The development of a trading platform requires a wide range of technical skills and expertise, and it's important to understand what resources and capabilities you will need to have in-house or bring in from outside. This may include software development, data analysis, and risk management expertise, among other things.

By understanding the needs of the market, the competitive landscape, and the technical and regulatory considerations involved, you can ensure that your platform is well-positioned to meet the needs of traders and succeed in the market.

Make it more specific 

Doing thorough research is important not only to understand your target audience but to choose a proper code infrastructure. Find out about the most popular types of code infrastructure for AI trading platforms below. 

One code infrastructure used in AI online trading platforms is the client-server model. In this model, the AI algorithms and data are hosted on a central server and accessed by users through a client application, such as a web browser or mobile app. The client sends requests to the server, which processes the requests and returns the results to the client. This model is useful for AI online trading platforms because it allows them to scale easily and handle large volumes of data without experiencing performance issues. However, it may also introduce security vulnerabilities if the server is not properly secured.

Another code infrastructure used in AI online trading platforms is the peer-to-peer (P2P) model. In this model, users can connect directly with each other to trade financial assets and share AI-generated insights without the need for a central server. This can be more efficient in terms of resource utilization and can also provide greater privacy and security for users. However, P2P trading platforms may be less stable and reliable compared to centralized platforms, as they rely on the availability and reliability of individual users.

A third code infrastructure used in AI online trading platforms is the hybrid model, which combines elements of both the client-server and P2P models. In this model, a central server is used to facilitate trades between users and provide access to AI algorithms and data, but the users are able to connect directly with each other to complete the trade. This can provide the benefits of both models, such as scalability, reliability, and efficiency while minimizing the drawbacks.

There are also other code infrastructures that AI online trading platforms may use, such as distributed ledger technology (DLT), which allows for decentralized, transparent, and secure record-keeping of transactions. DLT is often used in conjunction with blockchain technology, which is a type of DLT that uses a decentralized network of computers to validate and store transactions in a secure and immutable manner. This can be useful for ensuring the integrity and security of AI-generated insights and trading recommendations.

Building Your AI Trading Platform

Developing AI models for online trading platform

The development of AI algorithms for online trading platforms involves the use of machine learning techniques to analyze and interpret financial data, make predictions and recommendations, and facilitate the execution of trades. There are several different machine learning techniques that can be used to develop AI algorithms for online trading platforms, including supervised learning, unsupervised learning, and reinforcement learning

Supervised learning involves training the algorithms on a labeled dataset, where the correct output is provided for each input. This can be useful for tasks such as predicting stock prices or identifying trends.

Unsupervised learning involves training the algorithms on an unlabeled dataset, where the algorithms must learn to identify patterns and relationships on their own. This can be useful for tasks such as clustering and anomaly detection. 

Reinforcement learning involves training the algorithms to make decisions based on a set of rewards and punishments in order to maximize a certain goal. This can be useful for tasks such as optimizing trading strategies.

AI models

The next step is testing AI models, as it helps to ensure that the models are accurate, reliable, and effective in facilitating trades. There are several approaches that can be used to test AI models for online trading platforms, including the following:

  1. Split testing: This involves dividing the available data into a training dataset and a testing dataset, and using the training dataset to train the AI model. The model is then tested on the testing dataset to evaluate its performance. This allows for a more accurate assessment of the model's ability to generalize to new data.

  2. Backtesting: This involves using historical data to test the AI model's performance on past trades. This can be useful for evaluating the model's ability to identify patterns and trends, and for estimating its potential profitability.

  3. Simulation: This involves creating a simulated trading environment in which the AI model can be tested under various conditions. This can be useful for evaluating the model's performance under different market scenarios, as well as for stress-testing the model to ensure it can handle large volumes of trades.

  4. Live testing: This involves using the AI model in a live trading environment to test its performance on real-time trades. This can be useful for evaluating the model's ability to adapt to changing market conditions, as well as for identifying any issues or bugs that may arise in the real-world setting.

It is important to note that testing AI models for online trading platforms is an ongoing process, and the models should be continuously monitored and updated as new data becomes available and market conditions change.

Choosing the right software development vendor

Choosing the right software development vendor is important for the development of an online trading platform, as it has a significant impact on the success of the project. Here are some reasons why choosing the right software development vendor is important:

  1. Expertise and experience: The software development vendor should have expertise and experience in developing online trading platforms, as well as a deep understanding of the financial markets and the technical aspects of artificial intelligence (AI). This will ensure that the vendor is able to develop a platform that is robust, reliable, and effective in facilitating trades.

  2. Quality of work: The quality of the work produced by the software development vendor is also important, as it will impact the overall performance and reliability of the platform. It is important to choose a vendor with a proven track record of delivering high-quality work.

  3. Cost-effectiveness: The cost of developing an online trading platform can be significant, and it is important to choose a vendor that is cost-effective and able to deliver value for money. This may involve negotiating favorable terms, such as fixed-price contracts or cost-plus contracts, to ensure that the project stays within budget.

  4. Communication and collaboration: Effective communication and collaboration between the software development vendor and the client are essential for the success of the project. It is important to choose a vendor that is responsive, transparent, and able to work well with the client's team.

  5. Scalability and flexibility: The online trading platform may need to scale up or adapt to changing market conditions or business objectives, and it is important to choose a vendor that is able to provide scalability and flexibility. This may involve using agile development methodologies or adopting a platform-as-a-service model.

We at Yellow have an impeccable reputation and 7+ years of serving startups and mature businesses from all over the world and providing them with top-notch tech solutions. 5.0/5 on Clutch says it all. 

Illustration Vendor

Matching AI with online trading platform functionality

When the market research is done, business objectives are defined, and AI models are developed and tested, we can finally start implementing them into online trading platform functionality. 

  1.  Design future platform: At this stage, the user interface, the architecture, and the workflow are created. This may involve creating wireframes, prototypes, and mockups to visualize and test the user interface. It is important to design the architecture in a way that is scalable, reliable, and secure, and that meets the business objectives of the platform.

  2. Integrate the algorithms with the platform: Once the AI algorithms have been tested and evaluated, they can be integrated into the online trading platform. This may involve integrating the algorithms with the platform's user interface, as well as with other systems and processes, such as risk management and compliance.

  3. Monitor and update the algorithms: It is important to continuously monitor and update the AI algorithms as new data becomes available and market conditions change. This may involve retraining the algorithms on new data or modifying their parameters to improve their performance.

  4. Test the platform: To ensure that the end product is bug-free and delivers the maximum value to users. 

  5. Launch. The day has come! Actually, this is the beginning of an exciting path, as you’ll have to adapt your platform to user feedback and continuously monitor and update the platform as the financial markets change and new data becomes available. 

Tips & tricks for AI trading platform development 

Two aspects that are going to improve your trading platform: continuous learning and testing of artificial intelligence (AI) algorithms. There are several reasons why continuous learning and testing of AI algorithms is important for online trading platforms:

  1. Improved accuracy: Continuous learning and testing of AI algorithms can help to improve their accuracy in making predictions and recommendations. As new data becomes available and market conditions change, the algorithms can be updated and retrained on the new data to improve their performance.

  2. Greater reliability: By continuously testing and evaluating the AI algorithms, it is possible to identify any issues or bugs that may arise and fix them before they cause problems in the live trading environment. This can help to ensure the reliability and stability of the algorithms.

  3. Enhanced performance: Continuous learning and testing of AI algorithms can help to identify opportunities for improvement and optimization of the algorithms. This can lead to better performance of the algorithms and the overall trading platform.

  4. Risk management: Continuous learning and testing of AI algorithms can help to identify and mitigate potential risks associated with the algorithms. For example, the algorithms may be tested to ensure that they are not making decisions that are too risky or that are not aligned with the overall risk tolerance of the platform.

  5. Regulatory compliance: In some cases, online trading platforms may be subject to regulatory oversight, and it may be necessary to demonstrate that the AI algorithms are accurate and reliable in order to comply with regulations. Continuous learning and testing of the algorithms can help to demonstrate their compliance with regulatory requirements.

Wrapping Up

Artificial intelligence (AI) has increasingly been used in online trading platforms to automate and optimize trading decisions. AI algorithms can analyze vast amounts of data, identify patterns and trends, and make predictions about the movement of financial markets. This can help traders to make more informed and effective trades, and can also reduce the risk of human error. If you’re planning to develop your AI trading platform and don’t know where to start, you can book a call with us to get a consultation. We at Yellow have 7+ years of experience in building FinTech and trading solutions. For more information, check our portfolio.

🤖 What is AI in trading platforms, and how does it work?

AI in trading platforms refers to the use of artificial intelligence algorithms and technologies to analyze market data, identify trading opportunities, and execute trades. This can include techniques such as machine learning, natural language processing, and computer vision.

🤖 What are the benefits of using AI in trading platforms?

AI-based trading platforms can improve the efficiency and accuracy of trade execution, as well as help to identify new trading opportunities. Additionally, AI can help to reduce the impact of emotions on trading decisions, and can also assist in risk management.

🤖 What are the risks associated with using AI in trading platforms?

One potential risk of using AI in trading platforms is that the algorithms may not be able to fully understand or anticipate market conditions, leading to unexpected losses. Additionally, if the AI system is not properly monitored or regulated, it could be vulnerable to hacking or other malicious activity.

🤖 What are the different types of AI that are used in the trading industry?

There are several types of AI used in the trading industry, including Machine learning algorithms, Natural language processing (NLP), predictive analytics, high-frequency trading algorithms, and automated decision-making.

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