On Friday, Nasdaq Inc. received approval from the U.S. Securities and Exchange Commission (SEC) for its newest artificial intelligence (AI)-powered trading tool, the Midpoint Extended Life Order (M-ELO). This marks the first time an AI order type has been endorsed by the SEC.
The M-ELO system uses AI to refine the trading process, adjusting to real-time market conditions through advanced algorithms that consider over 140 data points every 30 seconds. This dynamic approach contrasts with traditional static methods and aims to provide traders with improved results, particularly in areas like fill rates and market impact.
According to Nasdaq's research, including feedback from market participants, this move towards AI integration is justified. Compared to the traditional M-ELO method, which was more uniform, the new dynamic approach has resulted in a 20.3% increase in trade completions and an 11.4% decrease in unsuccessful trades.
For individual investors, this may seem complex. In simpler terms, imagine being at an auction attempting to buy a rare item. Instead of immediate purchases, there's a short pause where an AI assesses various factors before allowing everyone a chance to make their best decision. This aims to ensure that buyers and sellers match up more efficiently.
In trading terms, M-ELO operates similarly to this pause at an auction. Rather than instant trades, there's a brief waiting period that can vary based on market conditions, ensuring optimal outcomes.
For everyday traders, this is akin to having a knowledgeable assistant by their side - one that understands the market well and assists in making informed decisions. The technology aims to offer investors better opportunities by providing a trading system that can learn and adapt, refining its processes based on real-time information.
The introduction of the Dynamic M-ELO represents a significant step forward in AI integration within trading systems. The new order type has demonstrated a 20.3% increase in fill rates and an 11.4% reduction in mark-outs, indicating a positive impact on trading efficiency and effectiveness.
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