The Dangers Of AI In Stock Markets

AI has made it easier for scammers to manipulate the market by way of spoofing, latency arbitrage or exploiting other vulnerabilities. But market participants are also relying on AI to fight AI and prevent and detect frauds

- Rishabh Raj

A sudden jump in a stock's price, a clean breakout on the charts, high volumes of order in premarket that disappear as soon as the market opens, or even a news headline that pops up at just the right moment. These are not always coincidences. For anyone who follows the bourses closely, these signs reek of market manipulation, a practice that has been around for as long as stock markets have existed. What is changing now is the way AI is being used for these manipulations.

While everyone seems to be talking about the rewards of embedding AI into stock market processes, not many are talking about the risks AI can bring in.

Many of these manipulation tactics exist already, but with advanced AI tools widely available, even manipulators with little expertise can wreak havoc. "With the explosion of AI to the masses, the barrier to launching these attacks has become lower and detection time has shrunk. This makes AI-enabled threats dangerous for global markets," says Dean Gefen, CEO of NukuDo, a US-based cybersecurity training provider.

Anshuman Das, managing director (MD) and chief technology officer (CTO), JM Financial Services, says, "AI allows negative actors to weaponise more easily and without much technical knowledge. Thus, the number of such actors is likely to increase as the entry barrier of knowledge is reducing."

AI Strengthening Existing Risks

Deepfake Impersonation: In April 2024, a video went viral on social media, showing the CEO and MD of the National Stock Exchange (NSE) Ashishkumar Chauhan giving stock tips, something someone in his position usually never does.

At first, many people believed the video was real. But it was actually a deepfake. The video used AI to copy his voice, face, and expressions so well that it looked genuine.