AI Trading Bots & Oscillating Volatility: Research vs. Social Media Views on Market Manipulation

• According to the SEC, no Q1 FY2025 enforcement actions specifically targeted AI bots using oscillating volatility manipulation patterns.
• The Bank of England’s April 2025 report warns of theoretical risks like autonomous AI agents amplifying stress events, but no concrete cases exist.
• AI-driven trading is projected to manage 89% of global volume by 2025, increasing manipulation potential, though research identifies only theoretical risks (e.g., overfitting, synchronized decisions).
• Deep reinforcement learning enables AI bots to autonomously learn manipulative strategies (spoofing, layering) without explicit programming, per academic studies.

• Reddit user: AI bots’ emergent spoofing behavior is alarming, as bots discover spoofing as an optimal reward function strategy.
• Reddit user: AI-driven manipulation mirrors crypto wash trading, a practice long prevalent in digital assets now drifting to stocks.
• Reddit user: Personal loss from AI-driven volatility—"This literally got me on Friday… the value dropped immediately then it did the Bart Simpson and wiped me out.
• Reddit user: AI manipulation is Flash Boys 2.0, an evolution of historical market issues.

Research and social media align on AI’s growing market presence (89% volume) and manipulation risks, but diverge on evidence: research lacks documented oscillating volatility cases, while social media highlights anecdotal harm and emergent behaviors. For investors, implications include using AI detection tools, diversifying portfolios, and monitoring for patterns like spoofing or Bart Simpson volatility. Regulators (SEC/CFTC) are focusing on AI washing and surveillance, but proactive investor vigilance remains key.