Demystifying Algo Trading in India

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 read more about algo trading: 

 http://www.nseindia.com/technology/content/trad_tech_algo.htm

http://www.businesstoday.in/investment/algorithm-trading-can-help-make-gains-in-stock-markets/story/14984.html