Welcome to the final episode of the AI in Finance series, exploring algorithmic trading and AI market makers—genuinely the wild west of AI in finance. Here's context most people don't realize: 60-70% of equity market volume already comes from algorithmic trading, with high-frequency trading alone accounting for roughly 50%. When you think about the stock market, you're thinking about a system that's already majority AI and algorithms, not human traders.

Sam and Mac explore what fundamentally differentiates AI algorithmic trading from traditional algorithmic trading. Traditional algorithms follow fixed rules: if condition X, then execute action Y—deterministic and predictable. AI algorithms learn and adapt dynamically, recognizing complex patterns across multiple variables, adjusting strategies in real time based on changing market conditions, and optimizing behaviors continuously.

The technical models include reinforcement learning (AI learning optimal strategies through trial and error in simulations), LSTMs for time series prediction, and increasingly transformer models adapted for financial data—same basic architecture as ChatGPT but trained on market data instead of language. These models are exceptional at understanding that the same price movement means different things in different contexts: high volatility versus low volatility, bull market versus bear market.

Regulatory landscape remains challenging. The SEC requires reasonable oversight, but defining "reasonable" for systems executing thousands of trades per second is genuinely difficult. In practice, this means kill switches, risk limits built into algorithms, monitoring systems that flag unusual patterns, and automatic shutoffs when volatility triggers occur.

AI in credit decisions is genuinely controversial because it could either democratize lending and expand access to underserved populations or take historical discrimination and amplify it at scale. The reality is both are happening simultaneously in different institutions—it all depends on how intentionally the AI is designed and monitored for fairness.

Sam and Mac examine how AI is disrupting traditional credit scoring. FICO scores have dominated for decades using limited data: payment history, credit utilization, length of credit history, types of credit, and recent inquiries. This approach systematically excludes millions who don't have traditional credit histories, even if they're perfectly responsible with money and would be excellent borrowers.

The technical models include XGBoost as the industry standard and neural networks for processing more data with hidden layers. Traditional logistic regression is often a poor fit for real-world credit behavior. Banks need model governance with clear ownership, regular bias testing, robust explainability, and human oversight for complex cases. AI handles straightforward approvals and denials; humans handle the middle—complex situations requiring judgment and contextual understanding.