Demand for AI among buy-side equity traders has grown from a whisper to a roar.

One quarter of the buy-side traders participating in a new North American study from Crisil Coalition Greenwich plan to incorporate internal AI technologies into their trade execution workflow in the next 12 months. Another 15% have already done so.

Buy-side traders believe that AI can have an immediate impact on some of their most important daily tasks. For example, nearly 80% think AI will have a significant effect in the area of algorithm optimization.

“Optimizing trading algorithms in real time is the Holy Grail of AI for buy-side traders,” says Jesse Forster, Senior Analyst at Crisil Coalition Greenwich Market Structure & Technology and author of Great expectations for AI in equity trading. “But is also a risky proposition requiring a significant investment of time and money, and one that only a handful of firms are equipped to handle.”

AI has the potential to deliver significant benefits in other areas of equity trade execution as well, including automating operational tasks like enhancing post-trade transaction cost analysis. Approximately 60% of study participants believe AI will have a meaningful influence in venue selection, and half expect AI to have a sizable impact on broker and strategy choices.

Significant Hurdles
Buy-side traders are eager to harness the power of AI to improve trading outcomes and reduce costs, but they must be mindful of the challenges and pitfalls that lie ahead. The industry is still in the early stages of building its AI capabilities and expertise, and developing and refining AI systems will take time and money.

Data quality and availability represent significant hurdles for AI adoption, with most buy-side desks lacking sufficient trading data. Additionally, the current AI landscape is backed by substantial investment, but costs are likely to increase as investors seek returns, which could impact firms that have become reliant on free or low-cost AI solutions.

“However, with careful planning, investment and collaboration, we believe that AI can play a transformative role in equity trading execution, enabling buy-side traders to make more informed decisions and achieve better outcomes,” says Jesse Forster.

Great Expectations for AI in Equity Trading examines buy-side traders’ perceptions of artificial intelligence in North America and measures current and planned usage of AI. It identifies the areas in which traders believe AI will have the most impact and assesses the trajectory of future progress and major obstacles to AI implementation on buy-side equity trading desks.

Source: Crisil Coalition Greenwich