RETAIL
PARTICIPATION IN ALGO TRADING: ECONOMY
NEWS: Sebi proposes allowing retail participation in algo
trading
WHAT’S IN THE NEWS?
Introduced by SEBI in 2008, initially for
institutional investors via Direct Market Access (DMA). It automates trade execution,
ensures speed, accuracy, cost efficiency, and allows backtesting of strategies
using historical data
Algorithmic
(Algo) Trading
What
is Algorithmic Trading?
- Definition: Algo trading refers to the
use of computer programs and algorithms to execute trade orders
automatically, based on pre-defined conditions like price, timing, and
volume.
Introduction
of Algo Trading in India:
- When: Introduced in 2008 by the Securities
and Exchange Board of India (SEBI).
- How: Initially allowed through Direct
Market Access (DMA), which enabled institutional investors to place
orders directly in the stock market without intermediaries.
- Over time, it gained
popularity due to cost advantages and efficient execution.
Benefits
of Algorithmic Trading:
- Efficient Execution:
- Executes trades at the best
available prices.
- Eliminates delays in order
placement.
- Accuracy:
- High accuracy in placing
orders reduces the chances of errors.
- Speed:
- Orders are executed
instantly, reducing the impact of sudden price changes.
- Cost Savings:
- Reduces transaction costs
by automating processes.
- Risk Management:
- Avoids human errors caused
by emotions or psychological factors.
- Backtesting:
- Trading strategies can be
tested using historical and real-time market data before implementation.
- Complex Condition Checks:
- Simultaneously monitors
multiple market conditions and triggers trades accordingly.
Source : https://indianexpress.com/article/business/sebi-proposes-allowing-retail-participation-in-algo-trading-9723915/