What are order types/AI-based order types?
When putting in an order to trade a stock, you will most likely be confronted with what type of order type you want to use. With the different kinds of orders, each distinct from one another, new investors may be thrown off in which one they should use. Luckily for new investors, order types can be categorized into two main parts: market order and limit order. The market order is the simplest out of the two and is usually used the most often. A market order is an order that is used to buy or sell a security at the quoted price but the price when the order is filled may be different from the price it was bought at, for example, if someone went to buy a $100 stock and put in a market order, in the few seconds it takes to confirm the order the stock price may have gone down to $105 meaning that the person ends up buying the stock at $105 instead of $100. Typically, market orders are filled first so they have the shortest delay from when the order is placed to when the order is filled.
Next is the limit order.A limit order is used when someone wants to set a minimum or maximum price for when they want to buy or sell their stock. If someone is watching a $50 stock and wants to buy it when its price changes to $40 they can set a limit order to buy the stock when it reaches or gets lower than $40. The downside of limit orders is that if you are buying multiple amounts of one stock there may not be enough time from when the stock price goes past the limit and the stock is bought meaning that you may not buy all of the stock that you ordered and your order is only partially filled.
Now that we have run through the main types of orders, we can move into what exactly an AI-order is. The AI-order has been created recently meaning that it doesn’t have much data on how it operates in the real market. However, it still has promising results reported through the tests and experiments operated on it. The AI expands from stock prediction software by making it “dynamic,” meaning that it is able to update and change in moments.
What makes AI-based order types better?
The main innovation AI-orders bring to the market is its ability to observe and analyzemovement and make predictions based on collected data points. As Nasdaq stated in their data sheets, “Calculated on a symbol-by-symbol basis, this new functionality analyzes 140+ data points every 30 seconds to detect market conditions and optimize the holding period prior to which a trade is eligible to execute.” By altering the holding periods based on the collected data, AI is able to theoretically predict where the stock is going to be in the future and update itspredictions almost instantaneously. AI has also displayed a “20.3% increase in fill rates and an 11.4% reduction in mark-outs” according to Nasdaq, suggesting that the order for the stock is able to be put in and processed faster with less deviation from the ordered price.
What are the possible effects of implementing AI-based orders?
These advancements in AI-based orders seem to put them at a highly advantageous stage when compared to the other types of ordering. If, in the future, AI-based orders are adapted and become more mainstream, we may see a shift in the paradigm of how we interact with the stock market or the stock market may evolve and change completely due to the AI. AI-based orders will most likely bring us less risk when investing since AI is able to react to a change in the market much faster than humans. But with an increase in popularity of AI, companies may try to find ways of exploiting it for their own benefit. Although AI is accredited for being able to learn and grow on its own, it is still unable to recognize when it is being taken advantage of as has happened in previous years. We are still in the early processes of AI integration with the stock market so it will take time before legitimate statistics and predictions can be developed but hopefully AI can be used as a tool responsibly in the future of the market.
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