Traders see AI in their future, says JPMorgan

traders bet that the artificial intelligence and machine learning will be the factors with the greatest impact on markets finances in the coming years.

For more than half of the respondents who participated in a survey by the JPMorgan Chase with 835 institutional and professional traders, these technologies will have the greatest influence on trading over the next three years.

The proportion compares with the 25% share in the survey in 2022.

“This automation trend is something we see across the market right now, and it’s been expanding into credit and fees as well as commodities,” said Scott Wacker, head of FICC e-commerce sales at JPMorgan.

Quantitative hedge funds are “bringing systematic models optimized with ‘machine learning’ to over-the-counter markets,” he said. “We also see asset managers more dynamically using data, AI-enhanced technologies to evaluate and improve how they execute trades.”

Many traders are already trying to integrate some form of AI into their systems and algorithms, according to the “2022 US Institutional Equity Trading” study conducted by Bloomberg Intelligence. Still, most saw artificial intelligence more as a “technology emerging fashion”.

Since then, the launch of ChatGPT in November increased interest in AI technology and natural language processing. The tool has taken the internet by storm and sparked a new debate about the role of AI in the workplace.

“People are amazed at what AI technology can achieve,” Wacker said. “Natural language processing is advancing at a rapid pace, but it’s a little harder to set up now. You are at the beginning of a journey.”

In another research topic of the JPMorgan, there are signs that last year’s turmoil in the crypto sector has dampened enthusiasm for the asset class. Around 72% of traders said they have no plans to trade crypto, compared to around 25% last year.

However, the technology blockchain and distributed ledger emerged as the third biggest impact on trading after AI and application programming interface (API) integration, which enables cross-app operation. JPMorgan has been using blockchain in repo markets.

“Blockchain in terms of settling and managing trades will be very interesting,” Wacker said. “It’s a little far. But, in the same way that AI and machine learning did not exist a few years ago, blockchain technology is about to climb the ladder.”

In a shift in response from the past six years, ‘Liquidity Availability’ is no longer seen as the biggest daily challenge in trading. Now, 46% of traders predict that “Volatile Markets” will be their biggest daily challenge in trading in 2023.

This is “a testament to how well the market has worked over the past 12 months, that liquidity concerns have been reduced very dramatically,” Wacker said. “Despite heightened volatility and activity, markets have proven to be robust and reliable.”