Algorithmic trading is such a term known extensively as it has its alternate name algo trading too. It is the process of executing financial orders as per pre-programmed automated trading instructions. This relatively recent development has kept gaining momentum in India and changed the entire dynamics of trading. The advent of technology struck chords with algo trading among Indian traders. As it promises efficiency along with speed and precision, legality remains a question. Algo trading is profitable when you choose the best algo trading platforms considering your risks and limitations. Below, we discuss the legal aspects of algo trading in India and clarify what one needs to know about the regulatory framework and guidelines set up by the respective authorities. We also answer your questions: "Is algo trading safe?" or "Is algo trading legal in India?
Yes, algorithmic trading is acceptable and lawful for
institutional and retail investors in India. Algorithmic trading is allowed and
controlled by the Securities and Exchange Board of India (SEBI), the regulatory
body in charge of the country's commodities and securities markets. To
guarantee honest and open market practices, it has set rules and regulations
for algorithmic trading. At the same time, it offers a framework for market
players to use automated trading techniques. As an approved vendor with several
Indian stock exchanges, including the NSE and BSE, trade Algos complies
strictly with all regulatory requirements. Moreover, before being posted on the
site, all pre-designed strategies (also known as trade Originals) are approved
by the exchanges, guaranteeing the protection of investors' interests and
adherence to legal requirements.
Also read: Algo Trading Bridge
Unregulated platforms: All platforms must obtain
SEBI’s approval to offer automated trading strategies in India.
Past performance claims: SEBI bars unregulated
entities or platforms from advertising past profits or expected returns from
their algorithms.
Audit: Every algo trading company needs a half-yearly
audit; this is something that the auditors appointed by SEBI do and no one
else. A system audit technically means an appraisal of the trading systems
employed.
Risk management: Market participants engaged in algo
trading need to have a well-established risk management system. It entails
pre-trade risk checks, post-trade surveillance, and even real-time monitoring.
Order-to-trade ratio (OTR): The order-to-trade ratio
is the ratio of the total volume of all orders, modifications, and deletions.
SEBI has framed a few OTR limits to stop bulk ordering by traders. If traders
breach the limit on any day for trading, they are penalized, as SEBI has put
the notice up. You can read more about these penalties in this circular!
Co-location guidelines: SEBI has framed the guidelines so that there is equal access to the trading infrastructure, thereby enhancing equal opportunity in the market.
If you are well-versed in all of the above domains, then you
should have no trouble backtesting to find out the efficiency of your strategy.
Backtesting: The process of applying your trading strategy to historical data.
You could develop a program to backtest your data as well. Besides knowledge in
the above domains, skills like logical thinking and econometrics are also
beneficial.
Building compliant trading strategies: Market participants are expected to build their trading strategies within the red mark of SEBI's regulations and guidelines.
To keep oneself updated and changeable: One needs to be kept abreast of regulatory changes and adaptable to them to succeed in algo trading.
Ethical Levels in Algo Trading: Every algo trader must focus on fairness, transparency, and integrity.
As tech gets better and market players adjust to new
problems and risks, the speed and effectiveness that algo trading offers will
become even more key to India's money world.
By getting a handle on the rules, picking trustworthy
platforms, and doing your homework, you can make your way through the algo
trading world without much trouble and maybe even boost your trading
experience. The outlook for algorithmic trading in India seems bright, giving
both individual investors and big players some exciting chances to explore.
In India, there are many algo trading platforms available.
In recent years, one platform, “Combiz Services Pvt. Ltd," has gained
popularity because of its quality services and features. Combiz Services can
develop your trading strategies and indicators and automate trading according
to your needs. Combiz Services helps to build algorithmic trading strategies.
Remember that Combiz Services Private Limited is not an "algo trading
platform"; they only develop your trading strategies. Visit its official
website for more details: "www.copytrading.combiz.org.".
The legal framework for algo trading in India is well-set, and it can only be practiced if the regulations are followed. Confident market participants can engage in algo trading by making sure they are fully aware of their legal landscape and adhering to the regulations. Algo trading is poised to play a very important role in the country's evolving financial markets if its players and those in the financial markets possess the correct knowledge and adhere to the necessary legal requirements.