Algo Trading in India - A Natural Evolution of the Trading Process

Algorithmic trading, often known as Algo trading, is the execution of deals on stock exchanges based on specified criteria and without human participation, using computer algorithms and software. High-frequency trading is a subset of Algo Trading in India is a way through which thousands of shares are bought and sold in fractions of a second.

While it has its critics, algorithmic trading is often regarded as a natural evolution of the trading process. Various initiatives have been implemented by markets around the world to offer investors a consistent experience. High-Frequency Trading and Algorithmic Trading account for over 70% of the stocks market share in the United States and other developed markets. In India, the share of overall turnover has climbed to 49.8%.

The Securities and Exchange Board of India started algorithmic trading by allowing institutional clients to use Direct Market Access. In a nutshell, DMA allows brokers to supply their infrastructure to clients and provide them with access to the exchange trading system without having to intervene. It was initially exclusively available to institutional clients, not regular dealers. Nonetheless, the service reduced expenses for institutional investors and aided in improved execution by reducing the time spent routing orders to brokers and delivering appropriate instructions.

With some of the world's most important players registering, the DMA system already had traction. UBS, Morgan Stanley, JP Morgan, and DSP Merrill Lynch were among the FIs and FIIs awaiting permission. Others who have submitted requests to the stock exchanges included Edelweiss Capital, India Infoline, and Motilal Oswal Securities. Foreign Institutional Investors have been able to use the DMA facility through investment managers they have chosen from.

The National Stock Exchange began leasing an additional 54 colocation server racks to broking firms to increase trading performance. The facility was used by Deutsche Bank, Citi, Morgan Stanley, Goldman Sachs, and MF Global, among other foreign brokerage houses. Among the big local firms that signed up for the racks were MotilalOswal Securities, JM Financial, and Edelweiss Capital.

Globe Capital, SMC, Global Vision, East India, and iRageCapital are among the local brokerages that have opted for the service. Not unexpectedly, after only a few weeks of offering this service, there was a 6-month wait to get a spot on the server racks. The Indian exchanges and regulatory organizations recognized that Algorithmic Trading is very well by institutional clients and banks in the country and that demand will continue to grow. Exchanges began to improve their automated trading products, financial technology companies began to offer automated trading platforms, and SEBI continued to oversee the markets during this period.

India offers an excellent chance for algorithmic trading due to a variety of elements such as colocation facilities and advanced technology at both major exchanges. Given the fast-rising trend and demand for HFT and Algorithmic Trading in developing economies and emerging markets, numerous exchanges have made efforts to educate their members and build the necessary skillsets for this technology-driven profession. There are numerous trading platforms and tools on the market, each claiming to be superior to the others. A person who is just getting their feet wet in the realm of Algo trading in India may find themselves spoilt for choice and perplexed.

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