The Secret Machines Running Wall Street: Why AI Makes Trading Faster, Cheaper, and More Dangerous

The modern financial market, once dominated by human brokers shouting orders on exchange floors, is now a hyper-speed landscape ruled by algorithms and Artificial Intelligence (AI). This massive shift, accelerating since the introduction of electronic trading in the 1970s and algorithmic trading in the 1990s, has transformed the behavior, liquidity, and risk profile of global stock markets. Today’s AI-powered microstructure offers undeniable benefits, making trades cheaper and execution faster. However, this new automated efficiency comes with a crucial caveat: while AI improves the average, day-to-day quality of the market, it dramatically elevates "tail-risk"—the rare but severe potential for sudden, massive dislocations. The net effect of AI on the market is therefore conditional.