The development of algo trading and its prospects in India
14 Dec 2022
The development of algo trading and its prospects in India
No industry has escaped the fast adoption of automation today. The volume of data collected at the recipient's points is constantly utilising automation to improve business operations and processes. It is used for everything now, including ordering food and organising travel arrangements. A traditional financial market is evolving into a digitally driven community as a result of the automation of financial activities and the ubiquitous accessibility of technological instruments.
Similarly, the journey of complex trading, which includes mental, tactical, and analytical awareness, is no longer deprived of the automation that is driving the investor on their trading journey. Algo trading, also known as algorithmic trading, is completely automated and involves the purchase and sale of stocks based on predefined rules. These rules are set based on historical data and predetermined algorithms. It's an entirely distinct strategy that gives the trader the means to react to market circumstances through automated trading.
Algo trading is known to outperform traditional trading methods, which involved traders sitting in front of screens for hours watching price fluctuations. Historically, traders had to work on honing their analytical skills and relying on their experience to generate profits. However, algo trading works differently, as the trader no longer has to keep an eye on the market, which saves them plenty of time. In addition, it takes care of all important tasks for the user, including searching, deciding the timing of buy and sell orders, and trading. Since there is no human involvement, the entire process is expedited.
Enables unbiased trading
With integrated technology tools, predictive models, and data analytics, algo trading is entirely automated. Since there is no human influence, traders are able to execute trades more quickly and fairly because computer-based programmes are always neutral. The algo trading process uses predetermined rules to limit human interaction and eliminate bias in industry analysis.
As a result, the trader does not experience an emotional roller coaster when observing price swings. The trader would already be aware of the next move that would lead them in the right direction thanks to the automated trading process. Therefore, it does not impair the ability to make decisions.
Calculation accuracy
Even in trading, a comprehensive analysis of the ROI or profitability ratio in comparison to that of other companies in the news is required before making any investment. Numerous trading methods are created by traders, and they all rely on intricate mathematical calculations and computer algorithms.
Before the induction of algo-trading, speculators used to recognize the price differences between exchanges through their analytical skills and mathematical calculations.
This involved the use of financial instruments, but they were time-consuming and involved human intervention. On the flip side, algo trading does not sleep like humans and works 24 hours a day on behalf of the trader. The self-learned algorithms quickly adjust to changing market conditions and fulfil trader expectations.
Fast and efficient
Technological advancement has covered almost all parts of the globe, and algo trading is no longer an exception in this case either. The developed markets, such as North America, Europe, Asia Pacific, Latin America, the Middle East, and Africa, are already leveraging the potential of algo trading.
Banks and other financial organisations are already utilising algorithmic trading in these markets for quicker, more profitable execution. The automated procedure offers the user better control over the trading process because it requires little data maintenance and is affordable. As the approach employs remote server networks to store, manage, and process data, the cloud-based application enables users to trade from anywhere in the world.
Future of algo trading in India
The performance of stock markets around the world has changed as a result of algorithmic trading. The trader has benefited from it in a number of ways while also suffering some losses.
The fully automated procedure restricts the trader's ability to consult with others on the investment decision, even though it significantly reduces the trader's workload. Because of this, algorithmic trading is a great exchange facilitator rather than a market driver. It is anticipated that it will become a long-lasting trend in the current stock market.