Slow & Steady, Algo trading takes up decent share on Dalal Street


Algorithmic trading, a gift of technological advancement to the stock market, is catching up fast with Indian traders and investors.

Markets regulator Sebi recently strengthened the framework for algorithmic trading, making its acceptance more widespread and inconspicuous.

To keep up with changing times, it has become essential for professional traders and arbitrageurs to ramp up speed of execution using contemporary technology tools. And algorithmic trading has come handy.

Algorithmic trading first entered stock markets in mid-1980s, and today it constitutes nearly 70 per cent of total trading volumes in developed markets.

Algorithms are a set of instructions that perform various operations in the market based on the inputs given. Market watchers say the use for algo trading is likely to grow rapidly, as people learn more about financial models, technical indicators and complex, multi-leg option strategies. In many US companies, programmed algos generate technical trades.

In Indian market, many traders use algo signals, which have a set of pre-defined rules, for trading along with their back-tested data base.

“Algorithmic trading can be used regardless of trading strategy. They are used for research and analysis as well as trade execution. One of the early usages of algorithms in stock trading was to help better and faster execution of large orders to reduce their adverse impact on prices, which was the case when such trades used to be executed manually,” says Nitesh Khandelwal, Co-Founder & CEO, QuantInsti.

“It has now become popular with professional traders to enhance profitability of various strategies regardless of market movement, a technique also called alpha of the strategy,” Khandelwal said.

Chandan Taparia, Technical & Derivatives analyst at Motialal Oswal Financial Services, said algo is a platform or a process of using program to follow a defined set of instructions for placing trades to generate profits at a frequency, as such trades are difficult to manage manually. A person can set defined rules based on price, quantity, timing, volumes and any other mathematical model.”

Taparia said the scope for algo trading is huge in India, because of its feasibility, speed and its ability to mitigate human error in execution.

Algorithmic trading can potentially help traders execute orders faster, expand strategy portfolios by using more advanced quantitative tools and remove human emotions that often affect the performance of trading strategies.

“Because of these reasons, algorithmic and quantitative trading strategies are getting more popular, as it can increase the likelihood of success with the backing of the statistical rigor,” Khandelwal said.

Sebi allowed algorithmic trading in India in April 2008 by opening up direct market access to the institutions. Since then, it has grown rapidly across the various asset classes.

“Today, close to 50 per cent of the overall exchange volumes in the F&O segment happen through algorithms. Even in the cash market, the share has grown to more than 30 per cent,” he said.

Algorithmic trading has much higher shares in developed markets, specifically in the US, where more than 70 per cent of overall exchange volumes comes through this route. A part of it can be attributed to the fact that algorithmic trading has existed in the US market for many decades now.

While many people often confuse algorithmic trading with HFT, which is only a specific case or subset of algo trading. One can use algo trading techniques even for fundamental investing with longer investment horizons.

Globally, algo trading is more popular among institutions and professional traders than the individual and retail traders for execution of trades.

The skill and technology needed for algo trading is complex and expensive. Hedge funds, option traders, strategists, pro traders, arbitragers, jobbers, scalper are major users of algo trading.

The key skill needed to succeed in this domain is an understanding of statistics and programming besides, of course, knowledge of the financial markets.

The success rate of algo trade depends on the logic or parameters set in the rule of algo. It’s not a default system, it’s only a platform where people can code their logics as per their understanding and according to a back-tested data base, said Taparia of MOFSL.

In terms of adoption, the Indian market has already crossed the halfway mark of the US and European market levels in last decade. Lower cost of technology, cheaper access to computing power and availability of skilled resources are likely to help fast-track this transition, Khandelwal said.

The future of algo trading adoption will also depend on how the regulations and government policies shape up.

Sebi has been quite prudent with the regulations in this domain. Sebi guidelines on algo trading have also played a positive role in helping its adoption.

From the regulation point of view, the first experiences with the technology have been encouraging. The Indian market has not seen many flash crashes compared with what similar instances in the developed markets.

There are also reports that Sebi might come up with guidelines for use of algo trading by retail traders, which shall help further understanding and acceptance of the domain at a larger scale.

“Algo trading can be beneficial for small-time investors, as it increases liquidity in the market and thereby simplifies the entry and exit process. Increasing depth of algo trading would be good for capital markets as it will remove price inefficiencies in traded securities,” says Ajay Kejriwal, President, Choice Broking.

Source – Economic Times.

Trade Volume Index (TVI)

The Trade Volume index shows whether a security is being accumulated or distributed.

SET MA = SMA(TV,21);

SET MA = SMA(TV,21);

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Use Of MTF( Multi Time Frame )

MTF stores price vectors for given period. This function assigns index number specified to vector and stores values as an array. The index number must be unique if the
function is used multiple times in a formula.

BUY : when RSI in 60 min < 25 and RSI in 5 min < 40
SELL : when RSI in 60 min > 90 and RSI in 5 min > 80


RSM < 25 AND RS < 40;}

RS > 80 AND RSM > 75;}

RSM > 90 AND RS > 80;}

RSM < 20 AND RS < 40;}

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Algorithmic Trading share in total turnover grows to 50% in 8 years



Algorithmic trading in India across the cash and derivatives market as a percentage of total turnover has increased up to 49.8% in eight years from merely 9.26% (average) in 2010. In March this year, 44.8% of the cash market volume and 48.2% of the equity derivatives market was driven by algo, showed NSE data. On the BSE, 37.22% of trade in March 2018 was driven by algo trading.

The daily turnover of equity market is around Rs 25,000 crore to Rs 30,000 crore, and in the F&O market, it is around Rs 3.5 lakh crore to Rs 4 lakh crore on a daily basis. However, as far as awareness of the retail investor is concerned, it is less in India. This is mainly because it requires specialised skills in addition to tools.

Sebi’s recent announcement on steps for strengthening algo trading through shared co-location has boosted the sentiments of algo solutions providers.

Experts believes that in the near future human-machine interaction could go to the next level. Through Deep Learning, AI, algorithms will self-correct and adapt to dynamic markets. Algos will be everywhere, in HFT, mid-to-low frequency, arbitrage, scalping, hedging, market making and anything you can define to a machine.

The efficiency of almost any trading done on the exchanges can be improved by leveraging technology. Automation of the trading process not just improves the efficiency of the trading participants, but also improves the efficiency of the market itself — arbitrageurs use automation to rectify pricing anomalies; and market makers use the power of technology to improve liquidity by providing continuous buy and sell quotes which automatically adjust to events and risks in the market.

Sebi eases Algo trade rules in commodity exchanges


In a bid to relax algorithm trading norms at commodity derivatives exchanges, markets regulator Sebi today raised the limit to process up to 100 orders per second by a user for such trade from the existing limit of 20 orders per second.

The decision has been taken after receiving representations from exchanges along with views of Sebi’s sub committee — Commodity Derivatives Advisory Committee.

“It has been decided to permit exchanges to relax the limit on the number of orders per second from a particular … User-ID up to hundred orders per second,” Securities and Exchange Board of India (Sebi) said in a circular.

The markets regulator asked exchanges to ensure that the limit it provides is subject to its ability to handle the load.

Besides, the regulator has decided to do away with the requirement of empanelment of system auditors by the exchanges for system audit of algorithmic trading.

Algorithmic trading or ‘algo’ in market parlance refers to orders generated at a super-fast speed by use of advanced mathematical models that involve automated execution of trade, and it is mostly used by large institutional investors.





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Brokers urge traders to adopt Algo Trading

Objective of the move is to use automation to maximise trading profits.


‘Completely automate your strategy with only a few clicks’; ‘Maximise trading profits by using approved execution strategy’, ‘Customise your strategy with custom target and stop-loss, bullish or bearish signals without any programming knowledge’.

These are some of the benefits of algo (algorithm-based) trading highlighted by Ludhiana-based broker MasterTrust on its website. MasterTrust is not the only one goading retail traders to adopt algo-based strategies to trade. A slew of other top domestic brokers such as Edelweiss Financial Services, Sharekhan, IIFL, Prabhudas Lilladher and Reliance Securities have started selling the concept to traders.

The objective remains the same: use automation to maximise trading profits. The broker too benefits by getting an additional fee from the traders — as high as Rs 15,000 to Rs 30,000 per month per strategy — to use the facility. “These strategies help traders tap opportunities in a milli-second, which is practically impossible through human intervention. Besides, algos can provide an additional source of revenue to brokers since customers are willing to pay a fee for using the facility,” said B Gopkumar, chief executive of Reliance Securities. He said Reliance Securities currently have three or four standard algo strategies in place and might do a mass rollout to its clients in the next month or so.

The simplest algo strategies could involve buying a stock when it rises above the 200-day moving average, or selling a particular stock when it moves into overbought territory. There are many other sophisticated strategies such as pair trading and scalping. Scalping, for instance, involves making profits on small price changes. Traders who implement this strategy will place anywhere from 10 to a couple of hundred trades in a single day to capture small price moves.

“At Edelweiss, we are addressing the needs of professional traders and high net worth individuals who have large trading teams,” said Harish Sharma, business head — brokerage and wealth management, Edelweiss Broking, adding they were looking to expand the suite of algo products in the coming months.

Algo trades use advanced mathematical models for effecting transactions and can pump thousands of orders in a second. There are multi-client and single-client algos. The former are automated strategies targeted at multiple clients and based on a preset system of rules developed by brokers or algo vendors. Single-client algos are customised according to the needs of a particular client. Popular algo vendors in the market include Omnesys, Symphony Fintech, and Greeksoft Technologies.

Brokers cite several benefits of employing algo-based strategies. It takes away the emotions from decision making, enabling traders to honour stop-losses and other targets. It also helps clients size their trades more effectively and ensure they don’t become over-leveraged in the market.  Some experts, however, believe algo-based strategies are not suited to individuals because of the complexity and the risks involved.

“Retail traders may not be in a position to understand some of these strategies and burn their fingers,” said a broker, on condition of anonymity.

While algo trades provide liquidity as more orders are placed, they can distort prices if wrong programmes are allowed to run unchecked. However, this is mostly a problem only in cases of large orders executed by institutional clients.

As a precautionary step, stock exchanges currently audit all algos to back test them and assess their risk parameters, and might take 25-40 days to before greenlighting a particular strategy.

Interestingly, in September last year, the Association of National Exchanges Members of India (Anmi), a body of stockbrokers, had written to the regulator, suggesting ways to minimise risks arising out of algo trades. At present, about 20 per cent of the turnover on the exchanges comes through the algo route.

Source – Business Standard (May 30, 2016)

Rising interest of online trading amongst the young investors


With easy availability of gadgets, use of superior technology, rising internet speed and access to analyst information, there is steep rise of over 76% of online trading among the young investors in the last couple of years as a primary source of additional income.

According to the survey, more and more youngsters are adapting this quick, efficient and hassle free option of stock trading. Around 60 to 75% rise in trading since the inception of online trading account India, especially amongst the youth investors. Be it a mom to the business professional anyone can be a part of this multi-billion stock market of India and trade anytime, anywhere and anyhow through Online Trading.

In its countrywide survey conducted by the Associated Chambers of Commerce and Industry of India (ASSOCHAM) under the aegis of its Social Development Foundation, reveals that the online share trade industry is growing by 160% year-on-year, the value of all trades executed through the internet has grown more than ten times in two years.

Major metropolitan cities in which respondents were interviewed include Delhi-NCR, Mumbai, Ahmadabad, Cochin, Bangalore, Hyderabad, Kolkata, Indore, Patna, Pune, Chandigarh and Dehradun and it was observed that there has been a steep rise in the use of online share trading with the upcoming technology platform for continuous trading. ASSOCHAM used random data to choose investors representing various age groups, occupation, gender, marital status and annual income range.

According to the findings of the survey, online share trading has become a major fascination by large number of young energetic and intelligent population mostly professionals or unprofessional and employed or unemployed.

Stock trading is the new age thrive, every youngsters are looking toward to improve the income levels. Online trading is the most profitable business, which just requires knowledge of the trading concept, said majority of the respondents.

The survey further reveals that young generation is very analytical, quick and responsive to the every changing market scenario, adds the survey.

With an online trading account India, you can access your mutual funds, stocks, IPOs, equities and much more avoiding the need for multiple brokers, multiple bank accounts and multiple folios. There is also no need to call an agent and one of the biggest benefits of online investment is the complete privacy, adds the 78% of the respondents.

The knowledge of basic trading concepts is enough to get youngsters started. Analyst feeds are also abundantly available online and that helps make trading easier. It is interesting to note that a majority of young investors prefer the futures and options or F&O segment to the spot market, adds the survey.

Online trading account India is considered as a key instrument to improve earnings amongst the youth who are smart, cautious and pick an easy go medium, as it does not require any complicated procedures to carry out trades. Men and women both trade online almost neck to neck in their race to earn high gains with less pain.

Private sector employees who wish to secure their future financial resources form biggest percentage of those trading online. Self employed professionals and public sector employees also form a large chunk of those trading online with most young investors focusing upon the market derivates, permutation and combinations, stats and graphs to extract handful returns from the markets, highlights the survey.

The lagging brokerages are now forced to improve their operational costs and age old lagging trade practices in order to be successful. One of the main obstacles to further development of online trading is telecom infrastructure, which is forcing most online retail brokerages to offer telephone trading as a backup, said Mr. Rawat.

Majority of the respondents doing internet trading belong to the age group of 18 to 23 years followed 24 to 29 years. Similarly, people belong to 30 to 35 age groups. Whereas, 8% people are each from the age group of 36 to 41 years and above 42 years age. Out of 2,500 respondents, 69 % are male and 31% are females.

Nearly, 32% of the people are doing job in private organizations and only 16% are having their own business. Whereas, 20% people are government employees and only 12% are professionals. Over 56% people are unmarried and 44% are married in the collected sample, adds the survey.

In the poll 36% people have an annual income range of 0 to 4 Lakhs. And 32% people have income between 5 to 8 Lakhs. Similarly, 16 % and 8% people have an income range of about 9 to 12 Lakhs and 13 to 15 Lakhs respectively, highlights the survey.

In the survey, it is found that majority of young investors (64%) like to trade in futures and options (F&O) and it shows there is a need to create awareness among investors regarding profitability of investment in futures and options, adds the survey.

The emerging scenario makes it necessary for the broking companies to identify investor’s perception of level service quality, which strongly influences the investor’s behavioral intentions. This would facilitate the process of categorizing, determining and measuring, controlling and thereby improving the investor inclination/interest in online trading.

With brokerage firms tries to find level of satisfaction of investors with broking firms by extending several incentives and concessional service charges to attract the investors.

The survey was able to target corporate employees from 18 broad sectors, with maximum share contributed by employees from IT/ITes sector (17 per cent).

After IT/ITeS sector, contribution of the survey respondents from financial services is 11 per cent. It includes employees engaged in banking sector, stock brokerage house, insurance sector, financial consultancy and chartered accountants.

Employees working in engineering and telecom sector contributed 9 per cent and 8 per cent respectively in the questionnaire. Nearly 6 per cent of the employees belonged from market research/KPO and media background each. Management, FMCG and Infrastructure sector employees share is 5 per cent each, in the total survey.

Respondents from power and real estate sector contributed 4 per cent each. Employees from education and food& beverages sector provided a share of 3 per cent each. Advertising, manufacturing and textiles employees offered a share of 2 per cent each in the survey results.

Algorithmic trading in India: Current State, Challenges and Future

Algorithmic trading in India

We posed the following question in-front of our experts in financial markets:

How do you think the Algorithmic trading is performing in India? And how you foresee it vis-a-vis the algorithmic trading in US?  The challenges facing the algorithmic trading in India, and its future?

But before we come to our question, here is a brief about Algorithmic trading and High frequency trading (HFT):

Algorithmic trading is the use of algorithms to generate orders based on certain conditions. In last 3 yrs, algorithmic trading has gained prominence in Indian Markets.

High frequency trading involves the use of these algorithms in placing orders in real time in stock exchange and utilising market inefficiencies for one’s benefit. Mostly arbitrage opportunities help HFT traders make small profits and since the volumes are high, even small profits help these HFT traders make huge gain!

Now, coming back to our question, in our view:

  • Algo trading in India is still in nascent stage. US and UK markets are way ahead of Indian markets.
  • The sentiment of Indian brokers/dealers towards high frequency/ algorithmic trading needs to change. They find it difficult to adapt to the new technology and do not want to give up their traditional way of trading.
  • All the exchanges require the algorithms to get an approval after which a broker can execute those algorithms. Among the Indian exchanges, getting approval from MCX is toughest and from BSE is easiest.

And now, let’s see what our experts have to say:

“Expect high sophisticated ALGO development, but likely focused on a relatively small number of liquid stocks. LIQUIDITY will define success of the effort. Regulatory issues could mushroom”

 “The key is to approach each market separate and tune the algorithms to specifically perform for that market.”

They further state that the approach to Indian market would consist of:

  1. Identifying the universe of stocks that drives the market and study over all the Indian market
  2. Speak to experienced “old school” traders and extract valuable information
  3. Create specific market rules which will drive the algorithms on the macro scale
  4. Build tailor made algorithms per each stock for the frequently traded stocks
  5. Build in local anti gaming techniques

It is evident that through algorithmic trading, investors will be able to customize algorithms and automate their trading strategies to serve best their objectives. This will allow them to access liquidity at an optimal price, alongside being able to reducing market impact and signaling risk.

But the move to introduce algo trading in Indian stock markets is being faced with many questions like the increasing volatility and the cost of its setting being a deterrent. But the shift to algorithmic trading will surely be better for the broader market, if not a few.