Traders are betting artificial intelligence and machine learning will have the biggest impact on financial markets in the coming years.
More than half of respondents to a JPMorgan Chase survey of 835 institutional and professional traders said such technology would have the most influence on trading in the next three years. That’s up from a quarter last year.
“This trend toward automation is something we’re seeing across the market now and is expanding into the credit and rates side as well as commodities,” said Scott Wacker, head of FICC e-commerce sales at JPMorgan.
Quantitative hedge funds are “bringing systematic models optimised with machine learning to over-the-counter markets”, he said.
“We’re also seeing asset managers using data in a more dynamic way using AI-enhanced technologies to assess and improve how they’re executing trades.”
Many asset managers already try to integrate some form of AI into their systems and algorithms, according to Bloomberg Intelligence’s 2022 US Institutional Equity Trading study. Still, the majority regarded AI as more of a “catchword emerging technology”.
The release of ChatGPT in November has turbocharged broader interest in AI technology and natural language processing. The tool has lit up the internet and sparked fresh debate over the role of AI across workplaces.
“People are amazed at what AI technology can achieve,” said Mr Wacker. “Natural language processing is moving along at pace but it’s a little harder to configure right now. It’s at the beginning of a journey.”
Elsewhere in JPMorgan’s survey, there were signs the past year’s turmoil in the cryptocurrency industry had curtailed enthusiasm toward the asset class.
Seventy-two per cent of traders say they have no plans to trade crypto, up from about a quarter last year.
Separately, blockchain and distributed ledger technology was seen as having the third-largest impact on trading after AI and application programming interface integration, which allows apps to work with each other. JPMorgan is using blockchain in repurchase agreement markets.
“Blockchain in terms of settling and managing trades is going to be very interesting,” said Mr Wacker.
“It’s a little further down the line. But in the same way that AI and machine learning weren’t quite there a couple years ago, blockchain technology is poised to move up the ladder.”
Traders predicted that "recession risk" would have the biggest impact on markets this year, closely followed by inflation. And in a change to the survey response for the past six years, "liquidity availability" was no longer the leading daily trading challenge. Instead, 46 per cent of traders predict "volatile markets" will be their greatest daily trading challenge this year.
That is “testament to how well the market has functioned over the past 12 months that liquidity concerns have reduced so drastically”, Mr Wacker said.
“In spite of the elevated volatility and activity, the markets have proven robust and reliable.”
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