How ChatGPT Is Revolutionizing Trading
The different ways that ChatGPT is changing how retail investors are trading
The trading industry is being upended by an unlikely contender - the artificial intelligence model ChatGPT. According to a recent report by CNN, ChatGPT's stock selection abilities could surpass those of conventional fund managers.
Here are six instances that illustrate ChatGPT's growing influence on billion-dollar funds as well as the retail investing landscape:
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1. ChatGPT's Triumph in Investment Portfolio Selection
CNN reported a couple of weeks ago that an investment portfolio curated by ChatGPT has managed to outperform some of the leading investment funds. This fund was instituted by finder.com, a renowned comparison platform for various services.
Jon Ostler, CEO of Finder, projected that ChatGPT's financial prowess wouldn't take long to captivate a vast number of consumers eager to leverage it for economic gain. His prediction suggests that AI's role in financial decision-making might soon become mainstream.
2. Composer integrates ChatGPT functionality into their automated trading platform
Composer is an AI trading bot platform where users can create, backtest and execute automated trading strategies without coding. Recently, they introduced new ChatGPT4 (the latest version of ChatGPT released in March 2023) functionality as an AI copilot for your strategies. For example, you can ask questions like "Can you create a retirement strategy. I'm in my mid-30s and want to retire my 65. Please diversify with gold and long term bonds" and you can follow with questions like "What are limitations of my investing strategy?" "What assets can I add to diversify my strategy?" "How can I make this strategy more profitable?" You can also ask ChatGPT to find and replace tickers. You can learn more here.
Popular Youtube influencer Siraj Raval recently created a video using this new functionality to create a trading bot.

3. Twitter user @Chrisjjosephs's ChatGPT Fund starts by outperforming $SPY
Chris Josephs, the founder of the popular @PelosiTracker_, has also established his own ChatGPT-based fund. With a starting capital of $50k, this fund has already shown promising results with initial results outperforming the S&P 500 ETF, $SPY.
This fund leverages various prompting techniques within ChatGPT to analyze stocks, picking those predicted to perform well. This application of AI in active portfolio management illustrates its potential to disrupt traditional investment strategies.

4. Research Paper Demonstrates Staggering Sentiment Analysis Performance Using ChatGPT
A recent academic paper by Lopez-Lira and Tang (2023) from the University of Florida highlighted the potential of ChatGPT in portfolio creation. The study explores the effectiveness of ChatGPT in forecasting stock market returns through news headline sentiment analysis. By using ChatGPT to categorize headlines as either good, bad, or irrelevant to firms' stock prices, a numerical score is computed. This score has shown a positive correlation with ensuing daily stock market returns and outperforms conventional sentiment analysis methods. Simpler models such as GPT-2 and BERT fall short in accurately predicting returns, emphasizing the significant shift that models like ChatGPT have created in the investing landscape.
You can find the link to the research paper here.

5. Release of Portfolio Pilot
Portfolio Pilot is a ChatGPT plugin for investing that can be used to assess your portfolio, get personalized recommendations, and fetch up-to-date information about individual securities like ETFs, stocks, cryptocurrencies, bonds, and mutual funds as well as macroeconomic trends.

6. Widespread Experimentation Across Twitter with ChatGPT in Trading
There is growing interest in the potential of ChatGPT in trading and investing on Twitter. Various individuals and organizations are experimenting with this strategy.
For instance, @iuditg, a Twitter user from India, is one of the many exploring how prompt engineering with ChatGPT can be used to generate returns of 5-7%.
Likewise, DataChaz, another financial enthusiast, is using the @portfoliopilot plugin in ChatGPT to construct portfolios and track their progress. This utilization of AI plugins for financial decision-making suggests the possibility of a more AI-integrated financial market in the future.

Final remarks
As these developments unfold, we are eagerly waiting to see their impact on the world of investing. However, it is still an open question whether this AI-driven approach will dominate the investment world, whether it will perform well on some aspects of the trading lifecycle such as risk management, or if it will fade away as a transient trend.
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