Artificial intelligence (AI), like many other sectors, has influenced the world of investing, helping traders and investors with data crunching and strategy development. However, can they help make money from trading and generate alpha?
Zerodha founder and CEO believes that while AI is an edge, it is just a different kind of edge. AI can make investors more disciplined, but not smarter.
In a post on the social media platform X, Kamath shared that AI cannot help make money from trading as long as a human is in the loop.
“As long as there’s a human in the loop, you’re still dealing with the same creature driven by fear and greed, and that human will keep making the same mistakes,” Kamath explained.
Besides, there may not be a significant informational edge left in markets because they are largely priced in.
“People making consistent money in markets are high-frequency trading firms, market makers, prop desks, etc. that have built infrastructural and data moats over the years, with significant investment of time and capital. Those are real edges,” said Kamath.
A tool to build strategies
AI, Kamath explained in his post, is a tool to help investors behave better in times of panic, not to generate alpha.
“What it can do is help you build and test strategies, then execute them systematically, removing emotion from the equation. That means fewer panic sells, less revenge trading, and more consistency. What it can’t do is turn a bad strategy into a good one or create a magic money tree,” Kamath wrote.
Kamath underscored that AI can make investors more disciplined, but not smarter.
Kamath’s social media post attracted over 100 comments from traders, investors, AI engineers, and others. Many of them agree that AI can’t beat the market, which is driven by human biases.
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.