Future of Algorithmic Trading in India – Reshaping the Stock Market


Algorithmic Trading uses automated pre-programmed trading conditions to execute orders in real-time in stock exchange. Since 2008, algorithmic trading has gained prominence in Indian markets and they are efficiently utilising the market inefficiencies for their own benefit.

Automation is the natural passage for any technology in future. Since investment is a process – it will translate better into Algorithmic Trading. Despite Algo trading being in incipient stage in India, it comprises to nearly 50 percent of the overall trading. The amount is highly low, as compared to the US and the UK markets where more than 90 percent of the trades (at much higher volumes) are done using algorithms.

The Indian market provides a decently good opportunity for Algo traders with its

• smart order routing system

• co-location facilities and sophisticated technology at both the major exchanges

• stock exchanges that are well-established and liquid

The Indian market is taking on the growing trend of and demand of HFT and Algorithmic Trading by educating its members about the technology. It is also helping them develop the skill sets required to help them understand the complications in trading.

For the Indian Algo trading scenario, Mr Richard Gula says, “Expect high sophisticated Algo development, but likely focused on a relatively small number of liquid stocks. Liquidity will define the success of the effort. Regulatory issues could mushroom”. Mr Gula develops and deploys databases on equities, futures, ETFs, and has built, managed and used financial databases since 1975.

Mr Gula further states that the Indian market should be approached with a separate strategy that should consist of:

• Identifying the right stocks driving the market

• Study and understand entire Indian market

• Understand the ways of old traders and extract information

• Create specific market rules to drive the algorithms on the macro scale

• Create tailor-made algorithms per each stock for the frequently traded stocks

Speed is of the essence where HFT executes trades in sub-milliseconds – traders will require algorithms and solutions that offer low latency and faster computation.

With the further evolving of the market each day, statistical models require constant tweaking. It is already apparent that algorithmic trading is used by the investors to customize algorithms and automate their trading strategies to manipulate their objectives. There is also the use of artificial intelligence solutions with the capacity to adapt to changing markets. These systems will be able to use news, satellite images, social media feeds, etc. to predict market trends.

However, the introduction of Algo trading in Indian stock markets – one of the most liquid open markets in the world – is looking to a betterment of the trading market. India can easily open up to foreign investors they would go for Algo trading in a big way. Algo trading is quickly becoming the future of the markets, with its minimal cost and risk in executing an order.

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