Nasdaq has received approval from the U.S. Securities and Exchange Commission (SEC) to introduce the first exchange AI-driven order type, known as dynamic midpoint extended life order (M-ELO). This system leverages artificial intelligence to update and optimize trade orders in real-time, potentially leading to increased efficiency in stock trading.
Nasdaq has achieved a significant milestone with the approval of its request by the U.S. Securities and Exchange Commission (SEC) to operate the first-ever AI-driven order type, known as the dynamic midpoint extended life order (M-ELO). This innovative system takes the existing M-ELO automated order type to the next level by introducing real-time artificial intelligence (AI) capabilities.
The dynamic M-ELO order type represents a breakthrough in automated trading technology as it utilizes AI, specifically real-time reinforcement learning AI, to continuously update and recalibrate orders as market conditions change. This dynamic approach is expected to enhance the efficiency of stock trading significantly.
Traditional order types are based on preset software instructions that execute specific trade pairs at predefined market pricing thresholds. In contrast, the dynamic M-ELO leverages AI to adapt and optimize its orders in response to evolving market dynamics, making it a game-changer in the world of financial trading.
During research and testing, Nasdaq reported promising results, including a remarkable 20.3% increase in fill rates and an 11.4% reduction in mark-outs compared to conventional order types. The AI-driven order type analyzes over 140 data points every 30 seconds to detect market conditions and optimize the holding period for trade execution. This dynamic adjustment of holding periods, as opposed to static timeouts in traditional systems, is expected to boost fill rates without causing a significant increase in market impact.
The introduction of AI technologies in the fintech sector has transformed the financial industry. AI-powered solutions, such as ChatGPT and large language models, have been integrated into educational tools for both traditional stock traders and cryptocurrency enthusiasts. Nasdaq's pioneering efforts in combining AI with finance include the use of predictive AI models to assist in navigating the complex landscape of over 1.5 million options listings in the U.S. market.
Nasdaq's achievement of SEC approval for its dynamic M-ELO AI-driven order type marks a significant step toward revolutionizing stock trading by harnessing the power of real-time artificial intelligence to optimize trade execution in response to ever-changing market conditions.
(TRISTAN GREENE, CoinTelegraph, 2023)