< Previous20 AB/Money – August 15, 2021 C OVER S T O RY / VI MARKETS Talal Al Ajmi, founder and CEO of VI Markets, shares his insights on how artifi cial intelligence (AI) and machine learning technologies are becoming a disruptive and prominent force in the online trading world BY LARA ABOUELKHEIR When stock trading first emerged, transactions were carried out on active trading floors filled with brokers and traders, with the key tool driving the reasoning behind these trades being the human brain. By utilising the pattern-spotting nature of the brain and sequential reasoning, traders commu- nicated verbally to convey trading information, along with their intentions and acceptance of trades in the trading pit. The services of the human floor trader are gradually becoming redundant as exchanges go virtual, paving the way for individual investors to participate in markets on an equal footing for the first time. As online trading continues to evolve, Talal Al Ajmi, a young Kuwaiti entrepreneur and CEO and founder of Version International Markets (VI Markets), believes that algorithms and MAN VS MACHINE: HOW AI ROBOTS ARE TAKING OVER ONLINE TRADINGarabianbusiness.com 21 / VI MARKETS/ VI MARKETS22 AB/Money – August 15, 2021 C OVER S T O RY / VI MARKETS machine learning technologies are the upcom- ing game-changers for the industry and the new norm for the future. Mimicking the human brain Traditionally, human traders would track the prices of stock and try recalling them, creating memories to form a pattern. AI can do the same task efficiently and can include more data points, mimicking a vital part of the human brain acti- vated when trading. Algorithmic trading, the most widely used form of AI in the financial industry, uses complex and advanced mathematical models to make trans- action decisions on behalf of humans. Rules built into this model attempt to determine the opti- mal time to trade, with the least repercussions on stock prices. AI systems operate by crunching through data, trying to find correlations, and teaching them- selves how to approximate future outcomes. The process of AI systems repeatedly going through data and trying to learn from it and find insights is known as machine learning. In other words, by effectively mirroring the approach and patterns of human traders, AI and machine learning are making trading more acces- sible to a greater number of people by decreasing dependency on human advisors. “Many investors believe that most of the infor- mation presented at the market is not enough for them to take the decision of investing alone,” says Al Ajmi. Retail investors are now increasingly using AI-driven investment platforms, which are prom- ising them secure and stable returns, citing their cost-effectiveness, simplicity and accessibility. Covid-19 impacts Over the past few years, the online trading world has been gradually moving towards being domi- nated by AI and machine learning technologies. Q PEOPLE HAVE BECOME MORE INTERESTED IN TRADING BECAUSE TECH HAS EASED THE PROCESS OF LEARNING AND ENTERING MARKETS” u Algorithmic trading is the most widely used form of AI in the fi nancial industryarabianbusiness.com 23 ESG FOCUS As climate change continues to dominate headlines, renewables and other sustainable opportunities are becoming more attractive. copying, in addition to providing tech tools that analyse a client’s position through a report that focuses on their successful strategies. “VI Markets possesses a huge market share in the Middle East, and most of our clients are asking for this kind of technology and want it launched as soon as possible. So, this [copy trading] is what we will be offering during August, in order to serve our clients with excellence.” With a well-established presence through- out the region, VI Markets provides investors in Kuwait a tailored online trading service, partnered with One Financial Markets, which was estab- lished in London in 2007. One Financial Markets is regulated in the UK by the Financial Conduct Authority (FCA) and offers global reach with local expertise through its wholly owned and affiliated offices across the Middle East, Europe, South America and Central and Southeast Asia. Coupling knowledge sharing with the power of AI As he believes that anything is possible through education, Al Ajmi is a strong advocate for the untapped opportunities that knowledge sharing can unlock. Speaking directly to his regional followers via his growing online platforms, Al Ajmi believes this connection serves as an effective means of spread- ing essential information around online trading. With terrible advice and bad-faith actors wide- spread on social media, Al Ajmi decided to bypass traditional marketing channels and speak directly to the public, in a bid to help people make more informed decisions with investing their money online. Of late, the coronavirus pandemic has greatly accelerated this transition, with retail investors finally beginning to unlock the full potential of these tools. “I believe that Covid-19 has shown the world that technology is the only saviour,” adds Al Ajmi. “It accelerated the development phase, in which most trading is being done remotely and without the need to be physically available. During Covid times, a lot of people have become more inter- ested in trading because technology has eased the process of learning and entering the markets.” Emerging technologies In term of new and emerging technologies, Al Ajmi believes that the focus for the next five years will be on copy trading technology. “Beginners will have the opportunity to learn from experienced traders and copy their trades from a well-developed app, that will allow people to meet, chat, discover, learn and more.” The premise of copy trading is as simple as its name suggests, involving tracking and duplicating trades executed by other investors in the financial markets. Copy trading, also known as mirror trad- ing or social trading, allows investors to automati- cally copy the trades of high-profile investors. Al Ajmi says this technology will just cost a subscription fee or percentage fee set by the trader. “Today, any trader who wishes to link his account with any investor can do so through copy trading. This new technology will provide the market with new investors and change the market movement along with its trends.” The Kuwaiti entrepreneur added that, while markets are still being swayed by people’s emotions, AI technologies are slowly evolving to be able to interpret these sentiments and patterns. “The market changes every period; its movement and the method of liquidity in it, and even the strat- egy of people who trade in the market varies from period to period.” When there is negative news, he adds, we see the trend shift towards selling, while positive news moves people to buy. “Programming and the use of technology is based on reading these emotions and interpreting them. I think the behaviour of human traders will be reduced, but their behaviour will remain visible in the market. “The use of AI and automated trading in the market will be a leap for every trader, as it will manage the risk levels.” Filling the gap Al Ajmi hopes to soon allow VI Markets users to link their accounts with others for programmed TECHNOLOGY ENABLING THE MASSES TO INVEST Retail investors are increasingly turning to AI-driven investment platforms to try and secure stable returns. u The pandemic has accelerated the development of remote trading options, believes Al Ajmi / VI MARKETS24 AB/Money – August 15, 2021 u Al Ajmi hopes to soon allow VI Markets users to link their accounts with others for automatic copying “With online webinars, we were able to provide the same quality and content to a bigger audience, being located in different parts of the world without worrying about all the Covid-19 restrictions. This allowed us to reach a huge number of clients and provide them with every- thing they needed.” Al Ajmi also believes that the key to success in the world of online trading lies in empower- ing novice investors in the Middle East through financial education coupled with utilising AI and machine learning technologies. “This technology will solve many problems and reduce many risks, but I think that the right deci- sion for anyone thinking of investing is to have an understanding of the basics of trading before turning to using this technology only. This will educate those interested in investing and give them a better chance to manage their risks.” Besides downloadable desktop programmes and smartphone apps for trading, the VI Markets site has a training academy that outlines, in accessible language and textbook detail, concepts such as CFD trading, forex, analysis tools, investor types and, perhaps most impor- tantly, trading psychology. 96.7k The number of followers Talal Al Ajmi has across Instagram and Twitter C OVER S T O RY / VI MARKETS u Technological improvements have seen interest in online tradingarabianbusiness.com 25 THE NFT CRAZE Among the fastest-growing alternative assets over the course of the pandemic, non- fungible tokens (NFTs) – which can include anything from digital artworks to football trading cards – benefi tted from the rising valuation of Bitcoin. Shift in investment priorities With the rise in robo-advisers, investment prior- ities are shifting as well, placing great value on more diverse investments. In the MENA region, exchange-traded funds (ETFs) are slowly becom- ing a disruptive force, adding value to the invest- ment sector. An ETF is an exchange-listed investment fund that may consist stocks, bonds, commodities or other financial assets, which can be bought and sold throughout the trading day. Previously, investing in stock markets meant buying stocks, however ETFs combine the trading flexibility of a stock with the diversification and low costs of a mutual fund. Investors can track a particular set of equities (stock ETFs); track the price of a commodity (commodity ETFs); invest in currencies (currency ETFs); or gain exposure to various types of bonds (bond ETFs), among other activities. With the pandemic accelerating public interest in investing and ETFs offering exposure to a basket of stocks at a lower cost and reduced management fees, ETFs have elicited promising responses from first-time investors. Robo-advisors and AI are playing a key role in this shift, given that they greatly invest in ETFs to give investors broad diversification with low underlying expenses. By selecting different types of ETFs, robo-advisors are helping manage invest- ment returns and market risk with diversification. Looking ahead Al Ajmi predicts a slow and steady transition to automated trading, with the upcoming period being mainly focus on copy trade technology aided by human advisor expertise. “The next three to five years will focus on using copy trading and utilising platforms that have more interactions between dealers in the markets. “There will be more use for automated trading and growing reliance of programming on read- ing, implementing and dealing with data in the market.” He reiterates that before fully integrating AI into the world of online trading, it is imperative to educate investors about the basics of trading and empowering them to be able to fully utilise these emerging technologies. Q THE USE OF AI AND AUTOMATED TRADING WILL BE A LEAP FOR EVERY TRADER, AS IT WILL MANAGE THE RISK LEVEL” Mutual funds vs ETFs: The differences investors need to consider While mutual funds and exchange-traded funds (ETFs) have much in common, demand for ETFs has recently skyrocketed, with investors citing the low fees and great diversifi cation they offer. Considering the key differences could be crucial in deciding what fund is right for your fi nancial goals: 1. Mutual funds are typically actively managed to buy or sell assets within the fund, while ETFs are mostly passively managed, as they typically track a specifi c market index. 2. ETFs can be traded like stocks, while mutual funds only can be purchased at the end of each trading day based on a calculated price. 3. As ETFs are traded like any other share on the exchange, investors need to pay commissions on sale and purchase of units. While in case of mutual funds, there is no requirement to pay any commission for the sale and purchase. 4. ETFs do not have a minimum holding period, and the investors are free to sell the investment as and when they like. Mutual funds come with a lock-in period, and during this timeframe, it is not possible to liquidate the investment. / VI MARKETSBY LARA ABOUELKHEIR With fi nancial advice being encroached by AI tools and robo-advisories, is hybrid the way forward in the age of the robots? HALF HUMAN, HALF MACHINE Q A HYBRID MODEL COMBINES THE ADVANTAGES OF DIGITAL ACCESS WITH AN ELEMENT OF FACE-TO-FACE MEETINGS THAT MANY CUSTOMERS WANT” C OVER S T O RY / WEALTH MANAGEMENT 26 AB/Money – August 15, 2021arabianbusiness.com 27 / WEALTH MANAGEMENT Today’s financial services clients want it all: personalisation, low fees and better returns. So, how can wealth managers meet these new investor demands in a highly dynamic environment? For years, the wealth management industry has been known for being conservative, driven by the relationship between a client and a dedicated human advisor. However, robo-advice or algorithm-led advisors are now becoming commonplace, with the advantage of lower costs and round-the-clock access. A rapid shift in regional consumer preferences points to combining the best of both worlds – the low cost and accessibility of algorithm-driven investment advice with a human advisor’s expertise in handling more complex investing scenarios – to present an offering that sits right in the middle of the spectrum: the hybrid wealth advisor. A golden opportunity for wealth managers Since the onset of the Covid-19 pandemic, the industry has witnessed a rapid digital transformation, creating a fundamental change in the way advisors interact with and serve their clients. However, while the pandemic has not changed the fundamentals of the industry, it has placed pressure on wealth managers to explore innovative client servicing models. “Digital transformation has led to the adoption of many tools to either enhance or in some cases replace traditional wealth management approaches. By introducing a variety of tools and services, organisations can enhance the experience for customers as well as wealth advisors,” says Basit Saiyed, regional head of wealth and liabilities at HSBC. If anything, the pandemic has provided a golden opportunity for wealth managers; clients are now accustomed to digital-first, making the transition to a hybrid model more acceptable and easily adoptable. A hybrid wealth management model entails blending human and digital advice to enhance client experiences and operational efficiency. Successful wealth managers have incorporated a high-level of digitisation around their proposition, whether it is to support client onboarding, enhance portfolio management or improve the reporting process. “Robo advice often gives customers with simpler investment needs access to basic wealth management services. This comes $700bn The UAE’s fi nancial wealth by 2025, according to the BCG28 AB/Money – August 15, 2021 with low costs, high self-service ability and is often preferred by younger demographics,” he adds. “A hybrid model combines the advantages of digital access with an element of face-to-face meetings that many customers want. Add to this a robo-service for those customers wanting a more simplified approach, financial institutions can offer more services to more customers without needing more advisory staff.” As technology continues to improve, there are significant benefits to be derived from digitisation, leading to increased profitability. Democratising wealth management The MENA region is renowned for having one of the most expensive financial services industries globally, with wealth management services mainly catering to the ultra-high-net-worth (UHNW) and high-net-worth individuals (HNWIs). However, with a great number of current investors being unable to fulfil the necessary qualifications for traditional wealth management services, digital financial advisory platforms have a great opportunity to fill the gap. This means traditional advisors will need to recalibrate their offerings to achieve greater customer engagement and retention. By using algorithms to analyse a client’s profile and delivering solutions tailored to their goals and risk profile, robo-advisors are making investing simple and affordable for everyone. They have opened investment options to a wider audience at lower costs, helping democratise the wealth management world. “The minimum you needed to start investing is very high and the fees exorbitant. Most of them are hidden, and you won’t even notice you’re paying them until it’s too late,” says Mark Chahwan, co-founder of online platform Sarwa. “This made growing wealth through investing available only for the wealthy few. The lucky few that managed to get an investment plan are badly burnt by long lock-in periods, hefty cancelation fees, and bad advice in general. Many traditional advisors push their own products versus looking at building their customer’s wealth.” Sarwa is the region’s fastest growing invest- ment and personal finance platform, which has recently secured $15m from a Series B round of fund-raising. Since its launch in 2017, C OVER S T O RY / WEALTH MANAGEMENT $15m Amount Sarwa raised in its Series B fundingarabianbusiness.com 29 / WEALTH MANAGEMENT FINANCIAL MUSCLE The UAE’s fi nancial wealth reached $600bn in 2020, 69 percent of which is investable wealth, according to Boston Consulting Group’s (BCG) latest global wealth report. “It is premature to discount the positive impact the human intellect and personal interaction has in creating solutions for the investment community. This is particularly relevant in the wealth management industry. Clients I would argue still do enjoy working with their trusted advisors to come up with solutions that meet their financial goals,” says Arjun Mittal, a senior banker, economist and independent advisor. “The ability of ‘humans’ to understand client psychology and hopefully create a bespoke solution is not something that algorithms can do yet. The outcome of a human devised plan maybe to use certain algorithms, but the creative thinking is still done by us.” Sceptics of the hybrid wealth management model also argue that the full array of advantages and disadvantages of this type of investing are still not fully understood. “Some of the disadvantages are that the machine may exit investments too early, the inability to discern irrational market moves, not all strategies can be automated and an over reliance of computing power and the need for a constant connection to the market,” Mittal adds. However, the stigma around digital wealth management services is slowly, but surely, changing. Rather than viewing digital tools as a threat, advisors are looking to capitalise on them to strengthen client relationships. “In this race to make money, I always believe a gradual approach is best – the tortoise wins the race. The ideal outcome, it seems to me, is a combination of human and AI/algorithms. I believe humans are still the best at creating financial investing strategies. The algorithm is a good way to execute the strategy if it can be modelled appropriately.” Sarwa’s digital advisory platform has changed how the region’s young professionals grow their wealth, offering a range of investment solutions to a market that has had little access to such services in the past. While digital enablement may seem challenging, given that it merits integrating new systems to drive away from old practices and mandates a shift in cultural mindsets too, the GCC countries have become well-positioned to foster the development of such robo-advisory services. “This old paper-based way of doing things isn’t adapted to today’s world and especially the post-covid world: people demand convenience, transparency and affordability,” Chahwan adds. The hybrid model is beneficial not only for clients, but also for wealth managers. By automating the routine transactional activities, financial advisors have been able to efficiently manage more clients, while finding the time to provide the necessary human financial advice that clients seek, especially amid market volatility. In addition, by adding digital capabilities, wealth managers are attracting the new tech- savvy younger demographic, who may not have significant assets now, but have great earning potential and might receive substantial intergenerational wealth transfers. Tapping into a new demographic Nowadays, wealth managers need to consider their changing client base, a set of tech-savvy wealthy millennials, who place time and cost efficiency at the core of their demands. To attract this new demographic and maintain competitiveness with their existing customer base, the hybrid approach is becoming imperative. Advisors can now engage with these customers and continue to provide cost-effective services as they move through different stages of life. Wealth management firms should revolutionise their digital game not only because millennials demand it, but also because non-traditional competitors are offering more in the digital arena. “Traditional wealth managers have failed to capture the younger demographic or the mass/ mass affluent,” Chahwan says. Looking ahead Financial markets are continuously evolving, and so it has become commonplace to see AI gain traction with investors. However, a common criticism of robo-advisors and AI is that wealth management is not “one-size-fits-all” and certain aspects of financial planning will always require a human touch. u Mark Chahwan, co-founder of Sarwa u Successful wealth managers have incorpo- rated a high-level of digitisation around their propositionNext >