As defined by NSE, Automated
Trading (also popularly known as Algorithmic Trading or Algo trading in short)
shall mean and include any software or facility by the use of which, upon the
fulfillment of certain specified parameters, without the necessity of manual
entry of orders, buy/sell orders are automatically generated and pushed into
the trading system of the Exchange for the purpose of matching.
SEBI has allowed Exchanges to
extend Algorithmic trading facility to members involving usage of various
Decision Support Tools / algorithms / strategies
Algorithmic trading can be
used either for high frequency trading (HFT) OR quant-based trading.
In HFT, the trade decisions
are taken and executed hundreds of times in less than 1 second. So, the
strategies require the kind of infrastructure and software management which
could only be afforded by Institutionals and they use it for deploying huge
amount of funds and predominantly play on arbitrage between instruments /
exchanges / indices etc. So, these are
low risk moderate returns strategies deploying huge amount of funds.
In Indian stock markets the
Algo trade volume is predominantly HFT
led by Institutionals and was around 40% of total trades in NSE and BSE in
March 2015, a substantial increase since 2008 when it was allowed first time
here. More than 80% of the Indian institutional trading flow (from both FIIs
and Domestic Fund Managers) goes through algorithmic execution currently.
In comparison, Algorithmic
trades accounts for over 75% of equity trading in the US markets where it also
includes quant based trading as well .
In Quant based Trading (which
also includes technical analysis based trading), the performance over a period
of time is analysed with the use of historical data and back testing. Based on
this, strategies are developed, tested and optimised. Typically, these
strategies would not involve a very high frequency of trades. These are
primarily designed to seek alpha and do not involve very high cost
infrastructure and therefore very suited for adoption by individuals.
In India, there are Order
Management Systems (OMS) available which allow for such trading from companies
such as Omnesys and Symphony. But strategy development, backtesting platform
which could automate the entire process from start to end, is not available.
Also, educated and informed
traders who could create powerful alpha seeking quant strategies are also few
in number.
So, despite the benefits of
algorithmic trading, since currently it remains too opaque a concept for most,
it is not getting adopted.
So, there is clear
requirement of an easy-to-configure quant strategies based strategy
development, backtesting and deployment platform which could simplify and
fructify the quant based algorithmic trading for individual traders.
TradersCockpit has now
created such a platform and has acquired the necessary approval from NSE for
its algorithms deployed on that platform working along with like-minded brokers
and is now set to start offering this to individual traders. To know more,
contact the customer support at TradersCockpit or email
connect@traderscockpit.com
Important links to refer to
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