What exactly is algo trading in India?
Algorithmic trading refers to orders generated at breakneck speed through the use of advanced mathematical models that involve automated trade execution. Even a fraction of a second faster access is thought to be capable of bringing a trader huge profits. The algo runs on the broker’s systems rather than the investor’s. When the algo generates a signal, an order is automatically placed on the investor’s account with no human intervention from the broker or the investor. When the specified criteria are met, the algo trading system automatically monitors live stock prices and places an order. This relieves the trader of the burden of monitoring live stock prices and initiating manual order placement.
As with everything else related to money and trading, it is critical to understand that you should first get proper training and understand how algorithms are designed and how they work across various trading platforms. pre-programmed strategies with no human intervention.
However, if and when you decide to begin, you will require a programme. If you are a programmer, you could create your own. Alternatively, you could choose one of the off-the-shelf algos sold by several algo trading platforms, which also provide backtesting data (past performance).
Golldencarat also offers fully automated Trading Bots that can place trades on your trade account using pre-programmed strategies with no human intervention.
What is the size of algo trading in India?
Algo trading is not a new concept, but the recent surge in the number of retail investors has given India’s market regulator Securities and Exchange Board of India (SEBI) concerns that retail investors could end up being the bag holders in a variety of ways, one of which could be through algo trading.
Algo trading is popular in developed markets and was first introduced in India in 2008. By 2012, algos were used by half of all traders in the United States. Algorithms account for nearly 80% of total trading volumes in the foreign exchange markets.
SEBI currently permits algo trading under certain conditions, including the adequacy of risk management systems and annual audits of brokers’ systems by Certified Information System Auditors (CISA).
What are the risks that I should be aware of?
At first glance, algo trading appears beneficial because it eliminates the time-consuming process of manually checking to see if your conditions are met and then placing an order based on that.
It is also worth noting that whatever humans are capable of, machines are capable of doing faster and more accurately. For example, while it may take you a few seconds to perform an arithmetic calculation, a calculator will do it instantly.
However, one of SEBI’s main concerns is the proliferation of algo trading platforms that either promise or imply that traders can make money by using their platforms.
What if you were told you could make money with a simple one-click service? That proposition is too difficult to pass up for many inexperienced users who may believe the claims made by those algo trading platforms.
Algo trading's Future Possibilities
Algorithms are the result of human ingenuity. It can work on any scenario that a human mind can conjure up. Algorithm strategies are created with market behaviour in mind, including volatility and uncertain conditions. It is critical to understand the strategy and deploy it in accordance with market conditions using back-testing and simulation tools.
Algo trading allows you to switch from one strategy to another based on market conditions.
Algo trading is poised to further revolutionise trading with the use of cutting-edge technology tools such as artificial intelligence and machine learning, as well as the use of big data. Currently, the volume share of algorithmic trading in developed markets is around 70-80 percent, whereas in India it is around 50 percent.
These unregulated algo trading platforms may oversell or misrepresent their algorithms to unsuspecting retail investors, causing them to lose their money. While the risk is lower when trading individual stocks, futures and options carry risk that is several orders of magnitude higher.
In India, it is approximately 50%. In the coming years, Algo will have a market share of more than 95%, with volume increasing many times over. So Algo is the future of trading, and Algo is the future.