Algorithmic trading is the process of executing orders using automated and pre-programmed trading instructions to account for variables such as price, time, and volume. An algorithm is a collection of instructions for solving a problem. Over time, computer algorithms send little portions of the whole order to the market.
Algorithmic trading makes decisions to buy or sell financial assets on an exchange based on complex algorithms, mathematical models, and human oversight. Algorithmic traders commonly employ high-frequency trading technology, which allows a corporation to execute tens of thousands of transactions per second. Algorithmic trading may be used in a variety of settings, including order execution, arbitrage, and trend trading.
- The use of process- and rules-based algorithms to utilize methods for executing trades is known as algorithmic trading.
- Since the early 1980s, it has increased in prominence and is now utilized by institutional investors and major trading businesses for a number of objectives.
- While algorithmic trading has benefits like faster execution and lower costs, it may also accentuate the market’s bearish inclinations by triggering flash crashes and sudden liquidity loss.
Do-it-yourself algorithmic trading has grown in popularity in recent years. Hedge funds like Quantopian, for example, crowdsource algorithms from amateur programmers who compete to write the most lucrative code in order to win commissions. The expansion of high-speed internet and the development of ever-faster computers at comparatively low rates have made this technique practicable.
Machine learning is another emerging technology on Wall Street. Computer programmers may now create systems that can improve themselves through an iterative process known as deep learning, thanks to recent advances in artificial intelligence. Traders are creating deep learning-based algorithms to improve their profitability.
Algo Trading: Advantages and Disadvantages
Algorithmic trading is mostly utilized by institutional investors and large brokerage firms to reduce trading expenses. Algorithmic trading, according to studies, is especially useful for big order sizes, which may account for up to 10% of global trading activity. To provide liquidity, market makers often utilize algorithmic trading.
Algorithmic trading also provides for faster and easier order execution, which appeals to exchanges. As a result, traders and investors will be able to benefit fast from modest price fluctuations. Because it includes quick purchasing and selling of stocks at small price increments, the scalping trading method sometimes incorporates algorithms.
When several orders are executed concurrently without human intervention, the speed of order execution, which is usually favourable, may become a problem. Algorithmic trading has been implicated in the flash collapse of 2010.
Another downside of algorithmic trading is that liquidity, which is produced by quick buy and sell orders, can vanish in an instant, denying traders the opportunity to profit from price fluctuations. It might also result in an immediate loss of liquidity.
Algo Trading in the Indian Market
Only the exchange data vending requirement applies if you’re utilising algos to backtest strategies or create manual warnings. Only the trading customers of a brokerage business are authorised to receive free data. You can’t republish market data that you get from any broker without getting consent from the exchange. However, if an algorithm is utilised to entirely automate order placement, meaning there is no human interaction in hitting a buy or sell button on the screen before placing an order, the rules outlined below apply.
Algos : Offered by Brokers
If a brokerage business hosts and manages a discretionary algo (one that determines whether to purchase or sell based on a algo strategy), the algo requires exchange permissions. This is true whether the broker uses the algo for their own private trading (prop) or whether it is made available to clients. When the algo provides a signal, an order is immediately placed on the customer’s account without the need for the broker or the customer to intervene.
Such algos can operate in the exchange colo if the trading strategy is latency-sensitive or if the execution speed can assist enhance performance (co-location). The computers that house these strategies, as well as their back-end execution management systems, are often hosted in brokerage firms’ data centres, which are connected to the exchange through leased lines, slowing execution speed. Algos, on the other hand, can get a significant speed advantage by being in the colo within the exchange’s infrastructure. HFTs are speed-sensitive methods that generally fire a large number of orders (High-Frequency Trading strategies).
Price arbitrage is an example of an HFT strategy in which the price difference of a stock is monitored on the NSE and BSE, and when a certain threshold is reached, sell on the exchange where the price is higher and buy on the exchange where the price is lower, and then reverse the trade as soon as the difference narrows. HFTs often rely on huge numbers of transactions to create profits, despite the fact that profit per trade might be rather modest. By the way, when we talk about latency (delay in execution), we usually mean milliseconds (1/1000th of a second) for internet-based trade and microseconds (1/1000000 of a second) for colo. That is, an internet-based trading platform provided by a broker can execute orders hundreds of times slower than an HFT operating in a colo.
However, such speeds are only required for specific arbitrage or market-making tactics. Colo is also a costly and complicated setup, thus ordinary investors seldom participate, and algos are often run by institutions within exchange colo.
Broker-provided algorithms require exchange approval. Currently, an auditor examines exchange permissions to ensure that risk management procedures and order limit checks are in place. This is because these are executed at the broker’s end, and they pose a systemic risk, particularly if they are HFTs. Systemic risk refers to algos misfiring huge orders, which can result in large market fluctuations or a high volume of orders, which can clog exchange systems. Retail clients are not permitted to be offered such tactics by brokers. Customers must first register as an authorised individual or a corporate organisation, then build a dealer terminal with the relevant approvals, and finally authorise automated trading. At the exchanges, all orders issued through broker algos are likewise labelled as algos. Tradetron is a multi-currency, multi exchange, multi asset Algo Strategy marketplace for people.
Top 10 Best Algo Trading Platforms in India
There are a number of algo trading brokers out there that offer platforms that you can check out before you start investing your money. Here are the few:
1. Zerodha Streak Algo Trading Platform
Zerodha has recently launched Zerodha Streak, an innovative platform. People who do not have any programming or coding experience can use this software to execute algorithmic trading.
Zerodha Streak is an interactive platform that allows you to write your strategies, back-test them, and semi-automate their trades. To use Zerodha Streak for algorithmic trading, you don’t need to know how to code.
Zerodha Streak is built on user interaction, with many options presented in the form of a graphical user interface. Traders can experiment with various tactics and back-test them to ensure that they are valid.
2. 5Paisa Algo Trading Platform
5Paisa Algo Trading is one of the firm’s most popular services and features. 5Paisa’s Algo trading platform has been praised for its wealth of features and types of techniques that assist investors make money.
Among the characteristics of 5Paisa Algo Trading are:
- The architecture of 5Paisa’s Algo trading system is sophisticated, and it includes various cutting-edge technology.
- APIs for.NET, C++, and other programming languages are available.
- For strategy coding, there is a help option.
- On this platform, you may create and customise plans.
- Assistance is offered for the approval of the stock exchange.
- A live paper trading facility is also offered for testing techniques.
3. Alice Blue Algo Trading Platform
Alice Blue Algo Trading Platform is a web-based trading platform that may also be referred to as an auto-robot trading platform, and it can be used to trade stocks and commodities. The stock brokerage firm has developed a platform with strong security measures to ensure that all transactions are safe.
The platform has a user-friendly design and is clever enough to guide traders through the trading process. It is a completely new technique of trading that assists businesses in raising funds by selling stocks and commodities.
4. Arihant Capital Algo Trading Platform
For the last twenty-seven years, Arihant has been a service provider to individual investors and traders. Arihant is a registered broker and distributor of mutual funds. They also have a solid reputation as a Category-1 Merchant Banker.
Arihant has shown to be pretty valuable to the traders and clients who have been a part of the organisation in one way or another. The firm has roughly two lacs of customers, and the management is efficient.
The organisation has established different platforms that can be used on a variety of devices in order to give better services and seamless trading.
5. Fox Trader Algo Trading Platform
Fox Trader is a cutting-edge online trading platform that provides comprehensive help to clients who have significant gaps in their knowledge and a lack of practical tactics when it comes to investing and trading in the stock market.
Have you ever wondered when you’ll be able to enter the stock market without the assistance of a broker? If you answered no, you are late. Fox trader has created algo trading software that is designed to meet the demands of active customers.
Whether you are a rookie trader who has no idea “how to trade,” “when to trade,” or “what to analyse,” or an experienced trader, this algo trading software will effectively lead you while also assisting you in deciding which indices are good to trade.
6. Mastertrust Algo Trading Platform
MasterTrust is a full-service private stockbroking firm with over 20 years of experience in the financial industry.
The firm has approximately 150,000 customers and operates in a variety of financial areas. They’re SEBI-registered and may trade on the NSE, BSE, MCX-SX, NSDL, and CSDL.
They also provide their consumers insurance and mutual fund services. It also has a well-equipped research team whose goal is to provide reliable and relevant data to MasterTrust’s clients so they may invest and trade in a variety of financial products.
7. Nirmal Bang Algo Trading Platform
First and foremost, Nirmal Bang Algo Trading is a next-generation stock trading idea. We’ve heard of Nirmal Bang, which is basically a well-known stock trading firm.
It is a Mumbai-based stock brokerage firm that has been active in the Indian stock market since 1986. It has now evolved into a full-service stockbroking firm that provides a diverse variety of goods and services.
Equity, derivatives, IPOs, commodities, mutual funds, and many more topics are mentioned. Algo Trading is their newest offering, and it’s where they want to shine right now.
8. Prabhudas Lilladher Algo Trading Platform
Inside the algo trading platform, Prabhudas Lilladher delivers a smooth atmosphere. You will learn about market information and facilities in order to secure stock trading by using this trading platform.
This PL Algo trading software will assist you in analysing market patterns and obtaining greater stock market opportunities.
This algo trading software will assist you in providing accurate advice 24 hours a day, seven days a week. In order to generate market behaviour, this platform is built using several sorts of algorithms.
9. Reliance Tick Algo Trading Platform
Reliance Securities offers a variety of trading platforms to its clients in order to assist them in making informed trading decisions.
There is no question that Reliance Securities has dominated several Indian locations for a long time. They are supplying updated facilities to their consumers in order for them to have a better chance in the stock market.
Tick is an autonomous robotic and data analytics based buying and selling platform that is available in the form of EXE on your smartphone, net, algo, and computer as a buying and selling platform.
10. SMC Global Algo Trading Platform
The SMC Algo trading platform is a fully automated trading platform that allows for lightning-fast trading. It undoubtedly opened the locked door for trading specialists to strive to obtain a leg up on the competition while also reaping the benefits of profit.
Another feature that makes the automatic trading platform appealing is the traders’ ability to configure it as they see fit.
In truth, the SMC Algo Trading research team deserves a lot of credit for devising such a clever trading approach that frees traders from the stress of manual trading.
Que.1 Is Algo Trading a viable option for intraday traders?
Ans. There are many algo trading aids available for short-term traders or intraday traders, as well as sell-side participants, who benefit from algo trading and automated trade execution because there are many algo trading aids available for them that will create sufficient liquidity for sellers in the market.
This type of trading is often used by speculators, brokerage companies, and arbitrageurs to practise their tactics.
Que.2 Is algorithmic trading suitable for long-term investors?
Ans. Algorithmic trading is primarily employed by mid- to long-term investors.
They invest in pension funds, insurance, and mutual funds, then use the money to buy enormous volumes of stock in order to avoid influencing stock prices with big volume and discrete transactions.