Shahar Rabin, CPO & Co-Founder of Capitalise.ai joins IBKRs Senior Trading Education Specialist Jeff Praissman to discuss the role AI and automated trading play in portfolio management and what the future of trading may look like.
Contact Information:
- website: https://capitalise.ai/
- Linkedin: https://www.linkedin.com/in/shaharrabin/
- email: [email protected]
Summary – IBKR Podcasts Ep. 67
The following is a summary of a live audio recording and may contain errors in spelling or grammar. Although IBKR has edited for clarity no material changes have been made.
Jeff Praissman
Hi everyone, welcome To IBKR Podcasts. I’m your host, Jeff Praissman, Interactive Brokers’ Senior Trading Education Specialist. It’s my pleasure to welcome to the IBKR Podcast Studio, Shahar Rabin, CPO and Co-founder of Capitalise.ai. Thanks for joining us today. Could you give our listeners a little bit of a brief background on yourself?
Shahar Rabin
Thank you, Jeff. Thank you for having me here today, it’s a pleasure. So, I’m Shahar, first of all, I’m a proud father of two. My academic background is in engineering and I’m a very enthusiastic day trader and the founder and Chief Product Officer at Capitalise.ai. The financial market has always been something that intrigued me and ever since university I started investing on my own in the markets and that’s what I’ve done in the past, better part of the last 20 years before I ventured out and started Capitalise.ai.
Jeff Praissman
Well, I’m excited for upcoming discussion on AI and automated trading. You know, with all the recent news on AI, whether it’s ChatGPT, the revamp Bing search engine from Microsoft and Google launching Bard,it seems overnight AI has become a household word. But it’s really been around for some form for a while and it’s playing a bigger and bigger role in so many areas you know. But before we get to AI’s role in trading, I kind of like to start with, in your in your opinion, how is trading evolved? Or I should say in your experience, how is trading evolved over the past thirty years or so?
Shahar Rabin
OK. So, let’s think about it, 30 years wasn’t that long ago, but 30 years when an individual trader wanted to place a trade, you would have to pick up the phone, call a broker, tell him you want to buy this number of shares, your price discovery was over the newspaper, so it was at quickest a day of a delay. The floor traders were Having a great advantage over retail traders, they were all in on prices way before any individual traders. So, before I look at the progress, I would look at 4 categories it is analysis tools, price discovery, trading execution and cost of trading.
So, if you look at analysis tools, if we were doing paper trading on actual paper and we didn’t have charts to play around with later in the late 90s, early 2000, we had great software. Software like E.D. Broker, eSignal, Sierra Charts but those used to cost a lot of money. But as time moved on and progressed, we got cheaper and better training solutions like Meta Code 74 which was free and TradingView which is mostly free and a lot of day traders can use that. So, the technology and analysis tools were advanced a lot. In terms of price discovery, today when I log into my IBKR trading platform I see the same prices as everyone else out there, so it’s way more balanced and fair. Trading execution is great, I have fence trading algorithms on my IBKR platform and on many other tools and even the cost of trading today can trade as little as dollar and even free trading in many cases. And when we can attribute all of that to the advantage of technologies. So, to summarize, we’re in a great spot today where the retail trader has powerful analysis tools for free, like never before.
Jeff Praissman
So really, in in all four areas the playing field has really been leveled to make it, the cost of entry, the barrier for the retail investor much lower, much safer. You could make a case that they have access to these research tools that would have been unthought of years ago. Like you said, they’re able to see real time pricing by clicking on the computer or their phone, whereas in the past you you’d have to pick up the newspaper and read the paper from the day before. So, it really does sound like all in all, the retail investor’s in a much better place than they were 30 years ago. And to kind of go toward our subjects with AI and automated trading and electronic trading, how can the combination of electronic and automatic automated trading and AI help a portfolio?
Shahar Rabin
So the straightforward answer would be that automatic trading can help us react instantly to market events and to hedge ourselves against risks immediately once they present themselves. If I have an AI where I can just tell it to close all my positions if the markets suddenly behave in an unexpected manner that pretty much … you know, it’s really cool. Pretty much close that gap and an AI can look at multiple market conditions at the same time where I as a person am quite limited, and it does that 24/7 as well. There’s a lot of data and there’s only so much that we as individuals can look at and react at once. But even before that, an AI can help us learn what constitutes as threats in the first place. If you can engage with an AI in your initial research, you can ultimately ask those questions that provide you the insights, the answers of what you should look for and what are the risks that you need to hedge yourself against.
Jeff Praissman
So really it seems like AI can help you know portfolio from inception to the end and everywhere in between if used correctly. In other words, like you said, you can use it to generate ideas that would be good investing ideas for the scenario that you’re predicting. It can manage your risk during the life cycle of the portfolio and if need be, it can properly close out the portfolio as well.
Shahar Rabin
I mean, for an idea generation perspective, the most time-consuming process when it comes when it comes to your training is not the idea itself but testing it and understanding if it’s valid. We ultimately — there’s limits, numbers of ideas we can explore as we don’t have the time to test them all and with an AI that is no longer a problem. So, imagine you ask your AI if I were to buy Apple every time something specific happens and sell it when something else happens, what kind of gains were I to expect? What kind of risks? What would be my drawdowns and etc.? So suddenly time is no longer a factor.
Jeff Praissman
To kind of stay on this subject, what are some of the limitations though of AI? Like it can’t be just a solves every problem in the world you know, you get the magic portfolio. What are some limitations when it’s being used for investing? Is there a danger of like a herd mentality where everyone’s getting the same answers or maybe relying it on too much as a crutch?
Shahar Rabin
We have to remember that ultimately an AI learns from history and data sets and build upon that. When something new happens, it lacks the ability to invent a new solution, it lacks imagination today, right. I don’t know about the future. So in the short term, I would use AI to assist me on my research and my training, but I would still make sure that I’m vigilant and aware of what it does on my portfolio at all time, not giving it complete control. You mentioned herd-like behavior, that used to be the case historically, we’ve seen that. I believe we’ll see that again in the future, so once again, I think AI is a prominent technology, but I would tread with caution for now.
Jeff Praissman
You know, it’s become more and more common that term. I feel like 5-10 years ago, even though it was around it was almost more like a science fiction term. AI, it’s going to take over the universe, and now we’re just seeing it in more and more areas of not just investing, but of everyday life. I mentioned the search engines in the beginning of the of the podcast that are using AI and it seems like it’s popping up everywhere. Specifically though, for investors, how has the barrier of entry changed over the past let’s say few years as far as people that are able to use AI. Like I’m kind of assuming it originally was maybe only available for big firms or maybe super wealthy individuals. What have you seen patterns as far as people that are utilizing AI or firms and over the last several years.
Shahar Rabin
So with big firms, first of all, they use technology in AI for many years, right? And they have the resources to put many engineers and a lot of technology into that. They use FPGAs, which means semiconductors and CPUs and put them in the exchanges themselves, with very smart algorithms that only get smarter, but those big firms are fighting each other in a way in the fight for the penny. If I were to look at wealthy individuals, so many of those are baby boomers and a lot of them are using … a lot of wealthy individuals use private banking and investment managers to manage their investing. I don’t think that this group is going to utilize new technologies to better their position just because they’re used to having their money managed for them. But a lot more is going on with the next generation, generation X and Y, who inherit those funds, and we’re much more inclined to use new technologies and today it’s easier than ever to open a trading account at any broker to consume relevant content and to utilize advanced trading technology and that group is doing that. We see that more and more, and that is the same for mainstream individuals now more than ever. Individual traders can use trading technologies no matter where they are in the world. All you need is a computer and a fast Internet connection.
Jeff Praissman
Although we haven’t really discussed it here, one thing that keeps coming up is, you know, ChatGPT and OpenAI. For our audience, could you just kind of briefly describe what those are just so they can get a frame of reference for these tools that they’re kind of hearing in the news and throughout sort of different areas of life right now.
Shahar Rabin
Sure. So ChatGPT, OpenAI, those are conversational artificial intelligence, which means it’s an artificial intelligence you can converse with. You can ask them questions and they will go and find the answers for you. You need to be alert that they use real world data for their answers, they scrub the Internet, and we know that the Internet … not everything that is out there is true and real. So, we need to take that into consideration, but you can converse through text-based chat. Now I’ve tried, obviously tried to take it to the next level. I’ve tried to ask ChatGPT to do something for me, to remind me when something happens, and this is where you kind of find the barrier. You can ask it to write you a nice poem and it will very, very quickly and a very nice poem but if you needed to manage something for you, that is not the technology. So, I would frame it as a conversational UI that you converse with artificial intelligence to get answers regarding a lot of different interesting and today, if you go to YouTube and you search for AI and writing code, you can actually find people using ChatGPT to write trading strategies code. So that is very interesting to see how people utilize that technology in that respect.
Jeff Praissman
Overall, would you say that you know ChatGPT and OpenAI are overhyped right now, or do you see them as a technology game changer down the road?
Shahar Rabin
I definitely see them as a technology game changer. We’re just getting started, today they are fresh news. When they were first trained, they were using every available data on the Internet to learn. Today, they already learned from us, from us interacting with them but the power of AI … already today you can write code, you can replace a lot of people in their jobs today. If I start a website and I want new content for my website and several articles, I can in a matter of minutes have the AI write relevant smart articles on any subject that they’re instructed to do so, I don’t need that person doing that. It can write code and, in a year, or two years’ time it will be an amazingly sophisticated pieces of code. So, I need less developers and I see more and more of the AI inception in every part of our lives moving forward. So, I think definitely a game changer. Who knows where it’s going to be in a matter of a year or two, not to mention five years? I think it’s a lifetime in that respect. So, it’s going to be very, very interesting, I’m very interested to see where it’s going to go, and especially in those places that. I don’t even have the power of to predict. Excited to see what will come next.
Jeff Praissman
To kind of pivot back to investing again and specifically talk about your company, Capitalise.ai and how you use AI to help investors?
Shahar Rabin
Sure, so Capitalise.ai is a research and ultimately a trading platform and it provides the individual trader a very easy and simple way to interact with the technology, with the training technology, using natural language interface. So, with Capitalise.ai you can write any kind of scenarios you have on the markets and then the platform will help you to ask the questions of “what if?” What if I were to invest in that way? It will help you to get notified when your scenarios apply on the markets and ultimately you can also automate your trading using those trading scenarios. So, it helps you with the decision making, it helps you remove emotional trading. It works 24/7, so ultimately, we’ll be able to manage your risk in a more responsible manner.
Jeff Praissman
Where do you see the future of AI and investing? Do you see it at some point there’ll be like no humans involved or it’ll be a tool, or it’s going to go somewhere where we can’t even imagine? Maybe, let’s say three years from now, five years, ten years or some sort of time frame, what do you think the possibilities are?
Shahar Rabin
That’s kind of the question when I get a loop in my mind because I see that AI ultimately it will be trading. It will do all our trading for us but what happens when everybody will have smart AI tools, right? We can’t have everyone making money in the end, so I’m interested to see where it’s going to go. I think the main benefits of AI use in the future revolve around the development and validation of reliable models. We need to take all this real time data and process it. We have so much data and humans … we have limits and an AI can do what humans will never be able to do, and that is process large amounts of data very, very fast and help us try to predict and build reliable models around it and make instant decisions very, very quickly. So that’s the impact for individual trader but yeah, I’m keen to see how that would playout when everybody will have those tools. Who’s going to win, who’s going to make more money? We all make way more informed decisions, but it’s going to be very, very interesting.
Jeff Praissman
It’ll kind of continue leveling the playing field it sounds like. As far more people have access, right, the kind of the better off everyone is with that information and it just depends on how they they’re able to use it and utilize it.
Shahar Rabin
Exactly, exactly. I think the technology has great power and it will be a matter of how you use that power. If you use it smartly or not.
Jeff Praissman
Thank you so much for joining us here at IBKR Podcasts. Captialise.ai is available free of charge for Interactive Brokers clients. For more information go to ibkr.com, go under the pricing header and then research and news. Captialise.ai is also webinar contributor and to view previous webinars as well as seeing upcoming live events, please go to our website under education. I also want to remind everyone that you can find all our podcasts on our website under education, scroll down to IBKR Podcasts or on Spotify, Apple Music, Amazon Music, Podbean, Google Podcast, and Audible. Thank you for listening until next time, I’m Jeff Praissman with Interactive Brokers.
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