• Algo-trading refers to the use of computer programs to automatically execute trades in the financial markets
Algorithmic trading, or algo-trading, has become increasingly popular in recent years due to its ability to process large amounts of data and execute trades at high speeds, allowing traders to take advantage of market opportunities.
What is algo-trading?
Algo-trading refers to the use of computer programs to automatically execute trades in the financial markets. These trades are based on predetermined rules set by the trader or trading algorithms.
When did algo-trading start in India?
Algo-trading is nothing new in India, but it is still in its infancy. According to Ram Kalyan Meduri, Founder and CEO, Jamma Wealth, SEBI registered investment advisory algos account for 70-80% of the total market volume globally and have various evolved structures, regulations and participants. However, algos are still doing only 50-60% of the volume in India and are relatively simple and less understood.
“Algorithmic trading only started in India around 2010 and was initially exclusively used by institutions and brokers. But more recently, with the rise of digital discount brokers and API solutions, the retail market has had open access to create algorithms, and the opportunities are endless!” he said.
“In India, algo-trading is becoming increasingly popular due to the development of electronic trading platforms and adoption of technology in the financial sector. Many traders and investors in India use algo-trading to execute trades more efficiently and quickly and take advantage of market opportunities that are difficult to identify manually,” said Sonam Srivastava, founder of SEBI registered investment advisor Wright Research. be difficult.
How is algorithmic trading transformative?
Algorithmic trading is transformative in many ways – apart from the profit opportunities for the trader, algorithms make trading more systematic by removing the influence of human emotions and errors on trading activities. It also makes the market more efficient and liquid.
The primary reasons algorithmic trading takes over manual trading are speed, accuracy and cost savings. Algos can find patterns and trade-in fractions in fractions of seconds – faster than human perception, and precision and accuracy are beneficial when machines follow predetermined instructions. In addition, the algo tracks your orders continuously without your supervision, which significantly reduces trading time for low transaction costs.
Benefits of algo-trading
One of the main advantages of algo-trading is that it can help traders make more informed decisions by analyzing more significant amounts of data over a shorter period of time, said Ram Kalyan Meduri.
This can be especially useful for traders who need more time or resources to manually analyze large amounts of data. Additionally, algo-trading can help traders execute trades more quickly and efficiently, which can be especially important in fast-moving markets, he said.
Drawbacks of Algo Trading
However, algo-trading also has its drawbacks. “A potential risk is that the algorithm may only occasionally make the best decision, especially when the market is highly volatile, or there is a lack of historical data on which to base decisions. Additionally, algo- Trading can make markets more sensitive to rapid price movements, as algorithms can react similarly to certain market events," said Ram Kalyan Meduri.
Exchanges and Brokers in India that provide algo-trading platforms in India
“There are several exchanges and brokers in India that offer algo-trading platforms and services, including the National Stock Exchange of India (NSE) and the Bombay Stock Exchange (BSE). Some of the popular algo-trading platforms in India include Omnisys Nest, Now, and TradePlus. It is important for traders and investors to carefully research and compare various algo-trading platforms and services before choosing one, as the fees and features vary greatly, said Sonam Srivastava, founder of SEBI registered investment advisory Wright Research. May be
Risks associated with algo-trading
Algo-trading is not without risk. "The potential for errors or malfunctions in the algorithms or computer systems used to execute trades can result in losses for investors. Additionally, algo-trading can be vulnerable to market manipulation and other forms of fraud." We recently heard about the infamous NSE scam," said Sonam Srivastava.
It is important for investors to carefully consider the risks and potential benefits of algo-trading before making a decision.
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