Baby Steps - Birth of Algo Trading in India

SEBI allowed algo trading in India in April 2008 by allowing Direct Market Access facility to institutional clients. This DMA facility was only limited to institutional clients at that time.	"People no longer are responsible for what happens in the market, because computers make all the decisions."- Michael Lewis, Flash Boys.
In 2009, the platform was made open to Foreign Institutional Investors(FII). Since then there has been an exponential increase in the Average Daily Trading Volume (ADTV).	Four years after the initial release of this book high frequency trading (a subset of algo trade) accounted for almost 80% of US equity trading turnover in 2018.

 

NSE started offering colocation servers racks to brokers in 2010. In 2018 SEBI asked stock exchanges to start offering shared colocation services, which dramatically reduced the access costs for small investors.

 

Growth

In 2010 algo trading constituted 9.26% of total trades in the equities market. This share increased to almost 18% in March 2020. Similarly, the share of high frequency trade orders has gone up from 78% to 98% between 2012 and 2017 in the derivatives segment.

At this pace algo trading might soon be the biggest mode of trading in the stock market.

 

Looking Ahead

Some issues remain - India has a high tax rate and the trading charges also remain too high for the common man to get involved with trading. SEBI is addressing these concerns while providing regulations to keep the markets safe for retail investors and traders.

Many investors and entrepreneurs have started sharing optimistic views towards the future of Algorithmic Trading.

"Through Deep Learning, AI, algorithms will self-correct and adapt to dynamic markets. Algos will be everywhere, in HFT, mid-to-low frequency, arbitrage, scalping, hedging, market making and anything you can define to a machine.” - Vivek Gadodia, co-founder at Dravyaniti Consulting.

 

Algo Trading is quick and simpler when compared with the old and conventional methods for trading. The future possibilities of Algo Trading are certainly very exciting and Algo Trading is set to grow exponentially. Hence, it will have an advantage over human trading.