Home

Algorithmic Trading india

Algorithmic Trading is a systematic trading that utilizes very advanced mathematical models for making transaction decisions in the financial markets. It’s all about organizing quantitative algorithms to progression, observe and administer trading decisions. In simple words Algorithmic trading is use of automatic software before investing in financial market. Stock exchanges across the globe are planning to legalize algo trading. India is one of the first among all the stock exchanges to regulate algo trading.

Experts say since algo trading is a cutting edge application it must be traded, regulated, executed and monitored properly. This automatic trading software offers its users facility of swift execution of trades and quicker recognition of arbitrage opportunities. It allows trader to focus on researching strategies and securities by eliminating the time involved in trade execution. At present, nearly 17 per cent to 18 per cent of trading on the National Stock Exchange (NSE) and Bombay Stock exchange (BSE) is following algorithmic trading concept and is expected to rise by 60-70 per cent within next four years.

Algo trading procedure starts with creation of a trading strategy. This human made trading strategy is then converted into automatic software also called algo by experts. Software experts create this tactic trading on basis of certain parameters and convert it into high level computer language. Algo means computer aided software and is divided into two parts. The first part of algo is detection of a selling or buying opportunity which involves exact time to buy or sell and what to buy or sell (asset class- debt, share, equity, mutual fund, currency, and commodity). The other part is the implementation logic which describes how the trade will be carried out. Price, volume, timing, etc are some of the aspects of algorithms.

Operating Algorithmic trading is not an easy task due to complexities involved in it. It requires special skills and proficiency. It necessitates understanding of strategy or domain knowledge and code development. Code development demands a powerful command over high level computer programming language where as strategy or domain knowledge simply involves deeper knowledge of prevailing stock trends in various sectors. Many trading consultancies took advantage of opportunity and established their own training programmes and institutes. This Demand for algorithmic trading jargon has grown swiftly in money market.

Major benefit of automated trading is that it can instantly track the financial market and order the trades when positive conditions are favorable. This automated software can perform several activities which could not be done manually. To name some, to make crucial decision on the basis of complicated calculations, ordering a trade the moment it becomes available. Automated trading is mainly used by the high class financial institutions and investors and is considerably being identified all over the world.

Algo trading is here to stay and it is the future of trading,'' said Deena Mehta, chairperson of the capital market committee of the IMC and former director of the Bombay Stock Exchange.Dr Gangadhar Darbha, executive director of a securities firm said, Algo trading is not about technology alone. It will change the entire trading environment.''