What is Algorithmic Trading ?
It is a trading system which is basically based on the some mathematical model. It is used for trading in the commodity market. It is also known as algo trading. There is mathematical model based software in which a preset formula for buying and selling of commodities is used. All the buying nad selling of commodities are done according to formula.
The strict rules built into the model attempt to determine the optimal time for an order to be placed that will cause the least amount of impact on a stock’s price. It is mostly used by the large investors or institutional companies.
It is soon going to be introduced into the commodity market for future trading.The experts are claiming that the amrket traders and investors are not ready foir this drastic change in the market. According to market news source market is not yet not ready for the automated trading system.
What can be major benefits from this change ?
- Due to the automation of trading strategies, decisions are taken at a very rapid pace. The speed of execution has moved from milliseconds to microseconds and is expected to move to nanoseconds.
- High frequency trading (HFT) or quant-based trading can also be done with the help of this software.
- Effective intelligent integration of OMS and direct market access trading platforms
- Ensuring optimized acquisition, processing, and delivery of market data through an efficient and integrated platform.
- Enabling continuous delivery of market data with the robustness to support the needs of the traders and investors
Algo and HFT exists in good volume in India, and while the difference it makes on an individual trade is very low, it is capable of causing wildly large market movements. So far, we have not seen any real damage because of these swings, and exchanges seem to have things under control.
Now, as far as a small investor is concerned, unfortunately even if you don’t agree with the argument that HFT provide liquidity to the market, and are an essential part of the market there is not much you can do about it and you need to really focus on stuff that you do have control over.
What you can do is always place limit orders, and not sell in this kind of panic – that’s all which is in your control, and rather than fretting over half a percent I think small investors are better served focusing on things that are in their control.
Personally, I don’t see any utility in HFT and find it unfair that someone should get information before others, if only for a few milliseconds, and don’t buy the argument that they really do contribute to liquidity. The markets were working quite fine without them for decades, and that someone by virtue of their size gets an edge on other market participants seems unfair to me.
Retail investors even in India already enjoy access to the basic algo trading tools. The NSE trading platform incorporates execution algos such as the VWAP or TWAP. To secure better prices for your trades, all you need to do is to ask your broker to use them on your behalf.