Basics of Algorithmic Trading Concepts in India

Algo trading, algorithmic trading, or automated trading is to trading that artificial intelligence is to computing: the next big thing. With the promise of being fast, accurate, and large; this blog discovers and discusses the unlimited opportunities and possibilities of what Swastika’s Algo Trading has to offer.

The Definition of Algo Trading: An Overview of its significance

By definition, in Algo trading, computer-generated algorithms are used to execute trades, where machines oversee the tasks (called program sets) that would otherwise be done manually by a trader. In simplest words, Algo trading is a computer program that determines and executes the manual steps in trading as a defined set of instructions. These sets are notably based on timing, price, quantity, or any mathematical model. According to research by The Cost of Algorithmic Trading: A First Look at Comparative Performance, algorithmic trading is especially beneficial for large order sizes that may comprise as much as 10% of the overall trading volume.

In India, algorithmic trading is still less than 50%, and firms are relatively small in size. A significant amount of Algo-trading volumes is in pure arbitrage (trading between the National Stock Exchange or NSE and BSE, for instance).

But complex Algos will, at some point, take over the Indian stock market. Given the rapidly growing trend and demand of HFT and Algorithmic Trading in developing economies & emerging markets, there have been efforts by various exchanges to educate their members and develop the skill sets required for this technology-driven field.

The Benefits: How is it better?

Making the trade process automated helps in tracking even the smallest changes in price and execute the trades on-the-go, faster than the trader can. That helps in improving the order entry speed, diversifying trading systems by permitting the user to trade multiple accounts or various strategies at one time by optimizing the potential to spread risk over various instruments while creating a hedge against losing positions

Also, an algorithm such as ours is able to scan for trading opportunities across a range of markets, generate orders and monitor trades. Since a system can respond immediately to changing market conditions, our Algo trading systems are able to generate orders as soon as trade criteria are met.

In simplest words:

If you are a Mid to Long-Term Investor, you can purchase stocks in bulk when you systematically wish to invest in the market with discrete, large-volume investments

If you are a Short-Term Trader, you can create liquidity and automated trading, it helps them to make the most of the automated trade execution

The Cons? What are the trade-offs?

The algorithms also tend to have a short life span. As good as they can be for menial strategy implementation, the customizability is lost. The speed of order execution, an advantage in ordinary circumstances, can become a problem when several orders are executed simultaneously without human intervention. It is highly probable that the strategies formulated on paper may not turn out to be successful and effective during live trading. This is called over-optimization, wherein the trading plan becomes unreliable in live markets. Despite strategies being built on historical data, there is a large possibility of the strategy failing as soon as it goes live if the right methods are not employed! Not all strategies cannot be automated and converted into an algorithm. So, the use of such strategies is not possible in Algo trading.

Damage Control: How can I manage the cons and make the most of the Algo Trading

As automated as Algo trading can be, it requires constant and consistent monitoring, so an Algo trading platform is not really the one that’s the wealth-maker for you, but the team of experts that can help you make the most of it.

No human is better than a machine, and no machine is better than a machine. With that said, Swastika’s team of Algo trading experts will be your kingmaker, not just because of their expertise in the algorithm or their wealth-making ability for the past 27 years, but their commitment towards their promise of सर्वे भवन्तु धनिनः