However, it is a complicated varmint that doesn't move linearly, making it difficult for traders to manually keep up with all of its movements because they are more prone to make catastrophes when lacking agility.
This is where Algorithmic Trading comes in. Algos are still new in India, accounting for only 50-60% of the total volume, and are yet to be adopted universally. Initially, they were used only by institutions and brokers. However, the proliferation of discount brokers and trading API solutions have now opened up infinite opportunities for retail investors as well.
Algos will eventually reach worldwide penetration levels as retail investors become more aware of them and have easier access to trading APIs. Algorithms make trading mechanical and more efficient by removing human emotions and biases.
Trading APIs offer the benefits of speed, accuracy, and better returns as they can go in and out of a trade in split seconds, taking advantage of sudden moves that the human eye can fail to detect. They also give traders a competitive edge over other traders.
Trading APIs can be useful not only for trading, but also for investment as they can watch out for predetermined buy levels for particular stocks and execute trades whenever the rates kick in. The accuracy and speed of the transactions based on predefined instructions help to reduce overall costs while yielding much better returns.
They offer traders and investors the flexibility of obtaining real-time data streaming and automated execution of trades, providing them with an edge over normal traders.
Apart from the obvious benefits, they can also make life more efficient for retail traders by slicing block deals to avoid impact on stock prices. They can automatically let the software take over their trades after programming the trading instructions and cut out the risk of dealing with trading emotions by mechanically executing entries and exits based on predetermined patterns or levels.
Trading APIs can be extremely efficient when deployed in arbitrage opportunities where money is generated consistently by trading the spreads. These are high-frequency trades, and automating the process can generate smart returns.
Conclusion:
There are over 100 million Demat accounts in India and counting. This indicates the potential for the adoption of trading APIs by the trading/investment community. It can unlock immense efficiencies for trading and investments by automating the order flow and execution based on real-time prices.
A lot of trades can be automated by customizing the API to suit individual needs and include personalized trading rules.
This will allow investors to focus on other business opportunities instead of being glued to the screen during trading hours. A set of predefined rules will allow the smooth execution of trades in the background, making it a perfect solution for professionals who do not intend to miss out on any trading opportunities.
The same is true for investment opportunities, where rules can be predefined to buy a stock whenever the price hits a certain level or to exit stocks when the price falls below a particular level. This will ensure that losses are contained on days of extreme volatility, irrespective of the active presence of the investor.
The widespread adoption of trading APIs could be a game changer for the investment/trading community as it could create efficiencies that will lead to a wider equity culture, something which is still missing in India.
This could see a lot of money flow into the equity market shortly. Of course, there would be a need to iron out existing lacunae and create a robust framework to eliminate fraud and illegal practices. Once that is firmly laid out, one can look forward to a blue-sky scenario for the investment ecosystem.
(The article is authored by Sidhuvelayutham M, Founder & CEO, Alice Blue)
"Trading" - Google News
November 20, 2022 at 03:14PM
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How trading APIs are shaping investment patterns and unlocking ecosystem opportunities - Economic Times
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