Business
ChatGPT for Financial Markets: What You Need to Know in 2023
There has been a whole lot of talk about ChatGPT these days:
Are human writers becoming obsolete in the face of growing reliance on ChatGPT? Is there any way to know if what you are reading was written by a person or a machine?
Is ChatGPT the future of written documents?
Though the media may lead you to think otherwise, ChatGPT is far from an all-powerful language model. Likewise, ChatGPT is far from the evil AI like those seen in films like The Terminator or I, Robot.
In reality, ChatGPT is just the latest in AI technology, except it is available on a much broader scope than AI programs of the past. Whereas unlocking the power of AI was once inhibited by one’s own budget and access to technological talent, ChatGPT represents a future in which these innovative technologies are more widely available to individuals and professionals at all levels.
ChatGPT carries both advantages and risks for financial markets.
On the one hand, ChatGPT can serve as a crucial assistant for dealing with heaps of data and drawing valuable insights from them. On the other hand, ChatGPT is a brand new technology so far untouched by regulation, meaning it poses real compliance concerns for financial institutions to consider.
Today, I’ll examine the true potential of ChatGPT for financial services.
What is ChatGPT?
ChatGPT is a language model that utilizes deep-learning methods to quickly research a specific topic and generate human-like text responses to a given query.
The language model is an example of artificial intelligence (AI) and functions similarly to a search engine like Google. However, unlike Google, ChatGPT is not designed to provide a laundry list of resources for you to read to find an answer, but instead comb through the available data to return a precise answer.
In addition to asking the language model to answer a specific question, users can also request ChatGPT to follow specific formatting requirements, such as word count.
For example, when we asked ChatGPT to describe itself in 50 words or less, this is what it had to say:
There’s no denying that ChatGPT is a powerful learning and language model indeed. However, it does come with a variety of limitations that must be considered by all users, including:
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Free vs. Paid ChatGPT
ChatGPT does have a subscription-based version called ChatGPT Plus that offers faster response times and early access to new features and improvements. As a result, users relying on the free version of ChatGPT may be working with software that does not offer the same capabilities as the pay-walled version.
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Inaccurate Information
At its core, ChatGPT is currently designed with conversational purposes in mind, not as a single source of truth. It does not provide real-time data or sources for the information it provides, meaning that some of the information may be inaccurate, misleading, or void of necessary context. ChatGPT developers do maintain a release notes document to keep users informed of all changes to the program and the limitations it has.
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Lack of Open-Source
Though it is free to use for the public, ChatGPT is not open-source software. This means that companies cannot freely leverage the ChatGPT source code for their own purposes, thereby limiting how the language model can be used for highly business-specific objectives. Currently, there is an OpenAI API Plugin that can be used to integrate ChatGPT into various applications and workflows.
ChatGPT for Financial Services: How Can It Be Applied?
In April 2023, CNBC released a news report revealing that a professor from the University of Florida believes that ChatGPT may be useful for predicting daily stock movements.
Though ChatGPT does not currently have access to real-time data, the professor used the language model to “parse news headlines” for valuable information and predict the best possible next-day returns.
The concept is simple enough — ChatGPT can be used to gather information and present it in a simplified way that makes financial predictions easier to generate. However, the possible implications are interesting for financial markets and the organizations that operate within them.
Let’s take a look at four ways ChatGPT could potentially be applied within financial markets, especially in terms of insight generation and decision-making processes:
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Financial Insights & Analyses
Arguably the most powerful of ChatGPT’s capabilities is its ability to condense massive amounts of information into digestible bits and simplified explanations. This can mean major changes in financial insights and market analysis, as ChatGPT may be able to facilitate services such as digital investment advisors and administrative assistants
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Risk Assessments
Though ChatGPT for finance does not have access to real-time data currently, it can leverage historical data to help in the risk assessment process. For example, ChatGPT could be used by investors to measure their current portfolio risk and determine where the greatest potential losses exist within that portfolio. Overall, ChatGPT has the power to greatly enhance risk assessment and management systems that may currently rely on manual effort.
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Market Sentiments
Keeping track of financial markets often comes down to understanding the current market sentiments — this understanding can be gained by monitoring key sources of information like news headlines and social media platforms. ChatGPT for finance can serve a role in helping to gather and assess this information to better dissect market sentiments and how they may impact the status of various financial markets.
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Personalized Recommendations
By using ChatGPT for recommendation purposes, financial institutions can provide much more tailored recommendations to their clients. This is thanks to ChatGPT’s ability to work off highly-specific prompts, allowing institutions to input very tailored information about a client and receive a precise response in return.
In addition to the above four use cases of ChatGPT in finance, the language model has several additional potential purposes should the program gain access to real-time data and information (say, for instance, if Google were to partner with OpenAI to integrate the source code into the Google search engine).
If ChatGPT for finance were to gain access to real-time data, it could also facilitate:
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Market Monitoring:
Market monitoring could be the cherry on top for ChatGPT if the language model ever gains access to the necessary data. If it does, then financial institutions may be met with some real-time monitoring capabilities.
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Customer Support:
Customer support via ChatGPT can only go so far without the right permissions and user consent for collecting private information. If these data requirements fall into place, however, ChatGPT could outpace existing AI-based chatbots in terms of the effectiveness of its customer support.
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Compliance:
Compliance is a complicated topic when it comes to ChatGPT for financial services. While it is yet to be seen how regulators will deal with this new technology, ChatGPT could provide regulators and financial organizations alike with a new opportunity to communicate and share information.
Are There Any Risks To Using ChatGPT for Financial Services?
No conversation about ChatGPT in financial markets can be complete without a discussion of the risks and limitations associated with the language model.
I’ve already touched on some of the risks ChatGPT for finance presents, such as a lack of access to real-time data and limited regulatory guidance on how the language model can be used in financial markets.
Here are three additional risks to keep in mind about how ChatGPT can impact financial markets:
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Limited Context
Though it has powerful grammatical capabilities, ChatGPT has only a limited understanding of context, making it difficult to tailor to specific financial use cases. For example, ChatGPT for finance may be able to tell you the risks of various payment integrations but may not be able to contextualize those risks in the specific regulatory environments you operate in.
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Data Bias
ChatGPT is highly reliant on the training data it is exposed to, including any data biases that may exist in that training data. As a result, financial institutions need to be wary of the ethical concerns surrounding the data ChatGPT is currently able to produce.
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Privacy
Data privacy must always be a priority when using AI or any other advanced technology in financial markets. Due to its unregulated nature, ChatGPT is not yet a viable source of information for most financial institutions, as the information provided cannot be easily verified or confirmed as secure.
Leveraging Next Level AI Capabilities with Exadel
Although ChatGPT for financial services may still be a ways away from its true predictive capabilities, organizations operating in financial markets are no strangers to artificial intelligence.
Since the dawn of digital transformation in the financial industry, AI and automation have played a key role in helping to optimize and streamline financial processes. From robotic process automation solutions with AI capabilities that reduces operational overhead and the errors associated with manual tasks, to predictive learning models that leverage machine learning to generate highly accurate insights, automation and AI have many existing uses within financial markets, available for you to leverage today.
At Exadel, our financial services experts have the experience you need to make the most out of the latest AI innovations. Whether that is ChatGPT or a new language model yet to be seen, Exadel ensures your organization has the technical infrastructure in place to support AI technologies.
Plus, Exadel executes all technical and digital developments within the scope of compliance in the jurisdictions your organization operates in.
Chat with the Exadel team today to learn how your organization can better leverage AI.