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Evaluating The Evolution Of Algorithmic Trading In India - A Prismatic View

Submitted by nagarajseo on Mon, 09/13/2021 - 22:34

The short name for automated or algorithmic trading is
Algo trading. You can also call it black-box trading. Its idiosyncrasy emanates
from the mode of trading it integrates. With the help of a few computerized
algorithms that you program, you can execute trades on the stock market.Algorithms are definite and definite instruction sets.
With this type of trading, you can produce profits at tremendous speeds and
frequencies.Know the basics of algorithmic tradingYou define a set of guidelines in an algorithm. They
depend on the quantity, timing, price, or any other model that thrives on
mathematics. In addition to generating revenue for investors, algorithmic
trading produces great market liquidity. Trading becomes a systematic and disciplined action as
it removes the element and affects human emotions on trading practices. To
enter the algo trading bandwagon, just open a Demat account and start your
operations.New trends of algorithmic tradingAfter SEBI spearheaded the opening of the country’s
markets to algorithmic trading, it led to
Direct Market Access or DMA. It permitted brokers to introduce their
infrastructure and resources to non-retail consumers and customers. • These customers could place trades through
algorithms. That was the first time when Algo trading in India had no human
intervention. • Gradually, the market saw various models coming out
of the arbitrage mechanism. They catered to Futures, Options, and Equities on
the NSE and BSE. • Algo trading has increased the turnover percentage
by over 50% on the BSE equity segment. The importance of algorithmic tradingAlgo
trading
helps stock market adherents and institutional investors maximize
the benefits of spot fleeting and trade execution efficiencies. However, don’t
negate their flipside. People often blame algorithmic trading for flash crashes
and wild, unprecedented swings in the market.• When stocks or markets hit crucial milestones, for
example, a 55-week high and low or a 250-day moving average, algo trading may
spike many trades. It magnifies the concerning trend.• The problem with India is that it doesn’t have
stringent rules for algo trading. The exchanges that utilize algo need approval
from SEBI before using their programs. • The regulations are tougher now. Stock exchanges
have no option but to allot a separate identifier for each algorithm post the
approval.Experts expect that it would help market control and
surveillance.Know your directiveEven if you’re yet to use algorithmic trading but are
active in the market, it’s imperative to know how other investors use it. A
persistent concern with algos and HFT is that if the program has a bug, many
investors can suffer losses. Don’t forget the Muhurat trading climax in 2010,
where chunks of the BSE derivative section had a hellish upsurge. People attributed this incident to a glitch in the
algorithm of one Delhi share broker. There’s no denying that typos and trade
errors can lead to stock prices running riot, leading to piggybacking of algo
trades.Do remember that the
success of your algo trading plans depend on your execution speed. It
invariably depends on the connection bandwidth and the distance the various
data segments are traveling.