Algorithmic trading, often known
as Algo trading, is the execution of deals on stock exchanges based on
specified criteria and without human participation, using computer algorithms
and software. High-frequency trading is a subset of Algo Trading in India is a
way through which thousands of shares are bought and sold in fractions of a
second.
While it has its critics,
algorithmic trading is often regarded as a natural evolution of the trading
process. Various initiatives have been implemented by markets around the world
to offer investors a consistent experience. High-Frequency Trading and
Algorithmic Trading account for over 70% of the stocks market share in the
United States and other developed markets. In India, the share of overall
turnover has climbed to 49.8%.
The Securities and Exchange Board
of India started algorithmic trading by allowing institutional clients to use
Direct Market Access. In a nutshell, DMA allows brokers to supply their
infrastructure to clients and provide them with access to the exchange trading
system without having to intervene. It was initially exclusively available to
institutional clients, not regular dealers. Nonetheless, the service reduced
expenses for institutional investors and aided in improved execution by
reducing the time spent routing orders to brokers and delivering appropriate
instructions.
With some of the world's most
important players registering, the DMA system already had traction. UBS, Morgan
Stanley, JP Morgan, and DSP Merrill Lynch were among the FIs and FIIs awaiting
permission. Others who have submitted requests to the stock exchanges included
Edelweiss Capital, India Infoline, and Motilal Oswal Securities. Foreign
Institutional Investors have been able to use the DMA facility through
investment managers they have chosen from.
The National Stock Exchange began
leasing an additional 54 colocation server racks to broking firms to increase
trading performance. The facility was used by Deutsche Bank, Citi, Morgan
Stanley, Goldman Sachs, and MF Global, among other foreign brokerage houses.
Among the big local firms that signed up for the racks were MotilalOswal
Securities, JM Financial, and Edelweiss Capital.
Globe Capital, SMC, Global
Vision, East India, and iRageCapital are among the local brokerages that have
opted for the service. Not unexpectedly, after only a few weeks of offering
this service, there was a 6-month wait to get a spot on the server racks. The
Indian exchanges and regulatory organizations recognized that Algorithmic
Trading is very well by institutional clients and banks in the country and that
demand will continue to grow. Exchanges began to improve their automated
trading products, financial technology companies began to offer automated
trading platforms, and SEBI continued to oversee the markets during this
period.India offers an excellent chance for algorithmic
trading due to a variety of elements such as colocation facilities and advanced
technology at both major exchanges. Given the fast-rising trend and demand for
HFT and Algorithmic
Trading in developing economies and emerging markets, numerous exchanges
have made efforts to educate their members and build the necessary skillsets
for this technology-driven profession. There are numerous trading platforms and
tools on the market, each claiming to be superior to the others. A person who
is just getting their feet wet in the realm of Algo
trading in India may find themselves spoilt for choice and perplexed.