Algorithmic Trading

Algorithmic Trading Latest News

The Securities and Exchange Board of India (SEBI) recently announced a settlement scheme for stockbrokers currently under regulatory scrutiny for collaborating with unregulated algorithmic (algo) trading platforms.

About Algorithmic Trading

• Algorithmic trading (also called automated trading, black-box trading, or algo-trading) uses a computer program that follows a defined set of instructions (an algorithm) to place a trade. 
• It combines computer programming and financial markets to execute trades at precise moments.
• The trade, in theory, can generate profits at a speed and frequency that is impossible for a human trader.
• The defined sets of instructions are based on timing, price, quantity, or any mathematical model. 
• Algo trading is already prevalent in India among both institutional and retail investors.
• Apart from profit opportunities for the trader, algo-trading renders markets more liquid and trading more systematic by ruling out the impact of human emotions on trading activities.
• Black Swan Events:
  • Algorithmic trading relies on historical data and mathematical models to predict future market movements. 
  • However, unforeseen market disruptions, known as black swan events, can occur, which can result inlosses for algorithmic traders.

Algorithmic Trading FAQs

Q1. What is algorithmic trading primarily based on?

Ans. A set of defined instructions or algorithms.

Q2. What is another term commonly used for algorithmic trading?

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Ans. Black-box trading

Q3. In the context of algorithmic trading, what are “black swan events”?

Ans. Sudden and unpredictable market disruptions.

Source: HB