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Natural Language Processing (NLP)

Trading Term

Natural Language Processing (NLP) is a branch of AI that focuses on enabling computers to understand, interpret, and generate human language. In finance, NLP is increasingly used to analyze unstructured data, such as news articles, earnings call transcripts, regulatory filings, and social media posts, to extract meaningful insights that can guide investment decisions.

For example, an NLP system can scan and interpret the language in a company’s earnings report to gauge management sentiment, identifying subtle cues like confidence or caution that may not be evident from the numbers alone. Similarly, NLP-driven sentiment analysis can aggregate market opinions from thousands of news sources or social media platforms in real-time, giving traders an edge in anticipating market moves.

Financial institutions also use NLP to automate compliance monitoring, process legal documents, and enhance chatbots for customer service. By converting vast amounts of textual data into actionable intelligence, NLP helps investors and analysts make more informed, timely decisions in increasingly data-saturated environments.

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