Artificial Intelligence and Derivative Trading: Opportunities and Challenges

Volume 11, Issue 2, 2026

International Journal of Commerce and Management Studies, ISSN 2456-3684

Paper Title

Author Name and Affiliation

Abhinav Ravindra Sontakke

Research Scholar, PHLR Dept. of Commerce, Nabira Mahavidyalaya, Katol, Emailid: abhinav1sontakke@gmail.com

Abstract

In the modern financial market, Artificial Intelligence (AI) has become a game-changer that has revolutionized derivative pricing, trading, and management. Financial institutions, brokerage firms, hedge funds, and retail investors have all adopted the use of machine learning, deep learning, natural language processing, and algorithmic trading to help them process large amounts of market data, make predictions, optimize trading strategies, and manage risk more effectively. However, the use of AI in derivative trading remains hindered by various concerns, such as algorithm transparency, cybersecurity, ethical considerations in decision-making, regulatory compliance, and market stability. Even though the applications of AI in financial markets have been a frequent topic of study, few have studied both the opportunities and challenges of AI-based derivative trading in detail, and especially in less developed financial markets like India. To fill this gap, this study aims to explore the scope and application of Artificial Intelligence in Derivative Trading, its effect on market efficiency, the performance of algorithmic trading, the risk management in the portfolio and the investment decision making. The research is descriptive and analytical, both primary and secondary data are used. Structured questionnaire with five point likert scale was used to gather primary data from 60 respondents comprising of retail investors and finance professionals and secondary data was gathered from research journals, books, SEBI documents, RBI documents, NSE documents, OECD documents, recent academic studies. The descriptive statistical techniques were used for the analysis of the respondents’ perceptions about the applications of AI in derivative trading. The results reveal that AI has a high impact on predicting markets, optimizing trading, ensuring portfolios are well-balanced, and providing instant threat tracking. But users also voiced worries about bias in algorithms, cyber security, regulation, and over-reliance on automation. This study adds to the existing body of knowledge by introducing a conceptual framework that connects AI technologies, the efficiency of derivative trading, and regulations. The results offer practical guidance for financial institutions, brokerage firms, regulators, policy makers and investors interested in responsible adoption of AI in the financial markets.

Keywords

Artificial Intelligence, Derivatives, Algorithmic Trading, Machine Learning, Financial Markets, Risk Management, FinTech.

References

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DOI

DOI: 10.67061/ijcams.2026.vol.11.issue.02.4084

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