Four Strategies Practiced In Algo Trading In India

Summary – Algo trading is the process of executing orders based on pre-defined rules given to computers. Orders are executed at a quick pace, which humans cannot perform.

Algo trading is a pre-determined combination of formulas, mathematical methods, and programming codes to enter and exit trades. Based on certain pre-determined conditions, the instructions are put together to make the algorithms.

Here are four main strategies used in algo trading in India to enable traders and investors to determine what works best for them:

Arbitrage – Profit from Differentials in Price

Traders accrue profit from arbitrage, which is the process of purchasing stocks of the same entity from a particular stock exchange market at a lower price and then selling the same stocks at a higher price in a different exchange market. Traders implement arbitrage by mainly studying real-time data to analyze the different stock prices in different markets by designing and implementing algorithms. These market inefficiencies are exploited for a brief window.

Trend Following- For Optimal Trading Decisions

This strategy is one of the simplest and most popular algo strategies used by algo trading brokers in India. Algo traders carefully follow certain trends, such as price movements, moving averages, and channel breakouts, to curate codes to design algorithmic trading software. These indicators are employed in their simplest exceptionable strategies, thereby canceling out the need to perform predictive forecasting. Algo trading systems support accurate trend identification for traders/investors to execute an order at the optimal moment. The codes take certain indicators into consideration, such as volume, support, resistance, and other important indicators, before transacting.

Index Fund Rebalancing – Modifying Weights and Securities

This is a frequent process that essentially involves modification of weights of the existent index constituents and addition or subtraction of securities. It is performed to maintain a balance with its index as and when securities are bought and sold. The holdings will correspond with their benchmark indices as they match the underlying asset's current market price.

Mathematical Model - Risk Management in an Unstable Market

Given how volatile the exchange market is and the risk that an investor is prone to, this is one of the best strategies for algo trading in India. Proven and tested mathematical models, such as the delta-neutral trading strategy, are deployed to provide opportunities for trading options and underlying security. This model constitutes multiple points with positive and negative deltas that cancel out to give an overall delta of the assets as null or zero.

Why Is It Important to Choose the Fastest Trading Platform in India?

It is important that you choose thefastest trading platform in India to get super-fast refresh rates so you can have the stock changes at your fingertips. Choose a platform that can preferably support the display of intuitive charts and multi-asset watchlists. It is important that it provides live-streaming quotes for the derivative markets and equity shares. It is certainly best if the platform is user-friendly for traders with a range of experience.

Neha Jaiswal is an experienced finance content writer who specializes in topics related to trading and investments.