Every day we hear about something new in the world of investing. First, it was crypto then alternative investments. But the coolest of all these trends is Algo trading. Why so, let’s find out.
In this article
- What is Algo trading
- How Algo trading work
- Options of Algo trading
- Benefits of Algo trading
- Get started on Tradetron
Let’s start with the basics- Algo trading is a method to automate your trades, this way you don’t need to sit in front of a screen all day.
Now, Algorithms are not new to the Indian financial markets, with almost every application and transaction using them to match your needs. Traders use algorithms in trading to mitigate errors and increase their potential profits. but first, this space was only accessible to a select few.
But with products like Tradetron, anybody can trade automagically without knowing a single line of coding.
Yes, it is true. Arihant Capital has partnered with Tradetron Algo Strategy Marketplace to offer Algo trading for every trader. So, you can use it to automate your trading strategies. Whether you are a complete market newbie or know zero coding, it lets you easily participate in trading.
Read along to know more about this new form of trading.
What is Algo trading?
Algorithmic trading, or Algo trading, involves the usage of a pre-determined set of instructions to carry out trading orders at high speeds. Banks, fund houses, insurance companies and financial service providers use algorithms to execute high-volume trades. Investors and traders can either create their own programs or use trading software to carry out trades.
You can enter instructions for transactions, including time, date and price, into such algorithms. Once the set conditions are triggered, the trading software executes the order automatically. Using Algo trading allows you to increase the efficiency of your trades and benefit from spot fleeting trading opportunities.
As computers analyse data a lot faster than humans, algorithmic trading is much faster, allowing you to avoid significant price changes. Thus, algorithms allow you to execute more transactions in a limited time without errors, glitches or your emotions impacting trades.
In India, Algo trading was introduced in 2009. Since then, it has been implemented by a large number of domestic investors and foreign institutional investors. Currently, SEBI allows Algo trading provided that they fulfil certain conditions, including risk management and annual audits by CISA (Certified Information System Auditors).
How does Algo trading work?
Algorithmic trading involves creating a set of commands to specify how and when to buy/sell stocks, commodities or currencies, etc. Traders who are proficient with coding can create their own algorithms for this purpose. Others can use trading software to enter instructions based on price, volume, time or even complex patterns.
Here are some examples of instructions you can issue to algorithms for Algo trading.
- To buy 200 shares of a company (ABC) if its price goes below ₹300 before 1 PM.
- Buy 200 shares of a company (XYZ) if its 10-day moving average decreases below the 100-day moving average before the market closes.
- Sell shares of PQR, quantity 500 at 2 PM if Nifty is below 17,000.
- Buy shares of MNO, quantity 200, intraday if its price is 2% higher than its previous closing day price by 3 PM. Else, auto square off.
- Buy NIFTY ATM CE OPTION when NIFTY50 CMP CROSS the first 15-minute candle high.
- Buy NIFTY ATM PE OPTION when NIFTY50 CMP CROSS the first 15-minute candle low.
The instructions for Algo trading need to be fulfilled once for the execution of trades. Unless specified otherwise, these instructions would become void if not fulfilled or executed once.
Different options of Algo trading in India
The following are the main two ways traders carry out Algo trades in India.
- APIs: The most commonly used Algos in this country involve APIs (Application Program Interfaces). APIs are mechanisms that dictate how applications will communicate with each other using a set of pre-determined definitions and protocols. Traders select their investment strategy and use such APIs from brokers to automate their execution.
- Zero-touch trading: In zero-touch trading, clients only have to choose their preference, and the programs will do the rest. The algorithm will identify opportunities based on pre-set quantitative indicators or technical levels depending on the client’s preference to execute trades.
Tradetron offers an Algo strategy marketplace where you can create Algo strategies using an easy-to-use point-and-click interface even if you have zero coding skills.
Benefits of Algo trading
Here are some of the advantages of algorithmic trading that you may want to know about:
- High-speed execution
One of the biggest reasons why Algo trading is so popular is that it executes trades in a fraction of a second. With this trading method, you can avoid significant price changes that can reduce your returns.
- Scans multiple indicators
Algorithms allow you to program as many decision parameters as you want. The programs can scan different markets using multiple parameters at very high speeds that no human can match.
When you manually execute trades, there is always a chance of making a mistake with your order quantity or stock selection. However, Algo trading eliminates the possibility of such loss-making pitfalls.
- Helps with HFT
High-Frequency Trading (HFT) involves carrying out high volumes of trades within split seconds to make gains from market opportunities. The success of such trades is affected by the bandwidth of your connection and the speed of execution. Algorithmic trading makes such trades possible.
- Allows backtesting
Platforms like Tradetron offer backtesting engines that allow you to test your Algo strategies with real-time historical data. This facility is beneficial as it allows you to remove any flaws before you go live. It will also provide you with deep insights to improve your strategies.
- Reduced transaction costs
With Algo trading, you don’t have to spend much time researching and monitoring the markets. The drastic reduction in time taken to execute trades saves you the opportunity cost of constant monitoring.
- Discipline-based trading
Algo trading helps in rule-based trading and avoids emotion at the time of trading.
- Marketplace for all
You can choose Strategy based on your requirement and account size, Tradetron provides you marketplace where numbers of strategies are available for every kind of market like equity cash, future, option, Currency etc.
- Test before you trade
To avoid any kind of hesitation regarding Algo trading you can do paper trading before deploying the strategy into a live account.
How can you get started on Tradetron?
Tradetron is a multi-asset and multi-exchange Algo strategy marketplace, where you can create Algo strategies using its powerful trading engine. You can automate your quant strategies and sell them to investors worldwide at no cost for data. To start on your Algo trading journey, follow the given steps:
Step 1: Open a Demat account with Arihant Capital
Step 2: Sign up and log in to Tradetron
Step 3: Choose an Algo strategy among the given options and click on ‘Subscribe’.
Step 4: Find this strategy from the ‘My Strategies’ section and click on ‘Deploy’.
Step 5: Go to the ‘Brokers and Exchanges’ section to add Arihant Capital
Step 6: Navigate to the ‘Deployed’ section to see if the strategy is active.
Algo trading offers you many benefits like extremely high speeds, accuracy and automated checks that are impossible for a human to match. Lately, their popularity has increased, and many regular traders are using them to execute automated trades. It is also a popular option for large clients and foreign investors.
So, what are you waiting for? Automate your trades today.