AI futures trading: Applications, benefits and examples 

 The term artificial intelligence (AI) has been used since the mid-20th century and represents a field of science exploring ways to make computers reason and think more like humans. But in recent years, the conversation around AI and its use in business, industry, and daily life has gained significant momentum as well as controversy.

In the financial markets and specifically in futures trading, AI is here to stay and will only increase its influence as it becomes more accessible to futures traders from all experience levels. In futures trading, AI applications are now being used to improve the performance of algorithmic trading including risk management, market analysis and forecasting, and broad-based market sentiment analysis.

The Commodity Futures Trading Commission (CFTC) is tasked to protect market participants, promote competitive efficient markets, and foster innovation. To that end, the CFTC has outlined applications for AI within the financial markets in the following ways:

• Trading (e.g., market intelligence, robo-advisory, sentiment analysis, algorithmic trading, smart routing, and transactions)
• Risk management (e.g., margin and capital requirements, trade monitoring, fraud detection)
• Risk assessments and hedging
• Resource optimization (e.g., energy and computer power)
• RegTech—applications that enhance or improve compliance and oversight activities (e.g., surveillance, reporting)
• Compliance (e.g., identity and customer validation, anti-money laundering, regulatory reporting)
• Books and records (e.g., automated trade histories from voice/text)
• Data processing and analytics
• Cybersecurity and resilience
• Customer service

Possible benefits of AI futures trading

As with most of AI’s applications, AI futures trading benefits generally fall into two buckets: (1) mitigating and reducing human error, and (2) improving trading performance, reaction time, and efficiency.

Here are some examples of where AI is being used by futures traders today:

• Automated trading systems: AI can help futures traders define trading rules based on historical data and then automate those rules, helping reduce emotions and discretional trading.
• Risk management: AI tools can help traders make better decisions related to trade-sizing, stop loss orders, diversification, and capital allocation.

AI futures trading tools that offset or mitigate human error are appealing for many traders. By incorporating historical data points and other relevant statistics, AI can deliver huge amounts of relevant data in a fraction of the time it would take a human. AI also doesn’t fatigue in the same way a human does when having to process and analyze large amounts of data.

Applications for AI futures trading

The NinjaTrader Ecosystem has several third-party providers offering AI-based applications for futures traders, many of which are either free or available to test through a free trial. Some examples are:

• AI Trend Predictor™ by Pinnacle Quant LLC predicts price direction movement over the next 24 hours based on an advanced AI model. For each prediction, it offers an accuracy percentage score.
• AiWave by AiTrading.Tools offers real-time market reversal forecasting powered by AI. It helps traders gain valuable insights into market movements, allowing them to make better informed decisions and possibly improve trading outcomes.
• The E.G. AI Accelerometer by E.G. Indicators reveals the driving force behind the price movements of a given asset by measuring how many buyers and sellers are in a market at a given time. This helps futures traders form a view of the future direction of the price as well as how fast that movement could be.

It’s important to note here that past performance of AI tools may not be indicative of future results. And although it’s true that AI is always improving, it’s also true that AI can misinterpret data and make mistakes. This is where the controversial aspects of AI can come into play: AI lacks the emotional intelligence that human users employ when interpreting data. This means that even the most minor AI mistake or misinterpretation can throw off the accuracy and legitimacy of an entire dataset analysis. As with any disruptive technology, when using AI in futures trading, caution is warranted.

To learn more about AI in futures trading applications and for full access to a growing library of indicators plus market analyzer and SuperDOM add-ons and more, visit the NinjaTrader Ecosystem’s trading apps and services section.

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