Automated Trading Landscape of Indian Markets

Automated trading or rule-based trading is something not new for Indian retail users. And all thanks to those modern technology-driven brokers who brought API-based trading to bring efficiency in system trading and take an emotionless driven rule-based trade automation.

Before looking into the retail side of Automation. Let’s try to understand who does Algorithmic Trading in the Indian Markets.

Variety of Market Participants use Algorithmic Trading for various purposes.

1) High-Frequency Traders – use Algorithmic trading for Market Making, Arbitrage, Pair Trading, and various quant-based trading. (They use co-location servers for faster entry/exit of the position)

2)Institutional Investors – use Algorithmic trading to execute a large number of orders using various execution strategies (VWAP, TWAP). Typically most of the order is sliced up into small orders and is placed in the market in such a manner that it has little impact on the current market price. Most of the Institutions also using Execution strategies to reduce the overall transactional cost.  In most cases, the algorithm searches the order books to look for liquidity in the asset and trades accordingly. Institutions use the DMA (Direct Market Access) order route for placing large automated orders.

3)CTCL based Algo Trading(Dealer Terminal): Computer to Computer Link (CTCL) is a trading facility provided by exchanges in India to their trading members. Using those CTCL terminals – brokers & sub-brokers are using their own trading software to trade on the exchange automatically. It requires an exchange approval before doing algorithmic trading and those who want to use the dealer terminal have to complete NISM series VIII certification. A CTCL terminal can only be provided by brokers to their authorized dealers (sub-brokers).

4)API Based Trading: API (Application Programming Interface) is a broker interface to submit automated orders using multiple programming languages (Python, Java, C#, etc) & technical software like Amibroker, Tradingview, Ninjatrader, Excel, Metatrader 4 & Metatrader 5.

Internationally many stock, commodity & forex brokers started providing such access to retail users to place automated orders as there is a growing demand for auto trades based on technical analysis rules. When comes to Indian market, most of the retail users have similar growing demands on trade automation. Based on this growing demand many Indian brokers have started offering API based automated trading and provides new age solutions to their technologically evolving customers. Comparing with International brokers most of the Indian Broker’s API solutions are robust enough and at par with International API standards .

API-based trading is mostly for traders who have a fair idea of systematic trading and build their own trading strategies on top of the Broker’s API. Retail trader’s strategies are Low-Frequency Trading. i.e strategies run on 5min, 15min, 30min & hourly technical charts to automate their trades using technical analysis rules.

Is API-based trading legal? Internationally yes and when comes to Indian Markets, regulations are yet to be built by the authorities. And TOP Brokers are hoping for API-based trading guidelines in the near future. We at Algomojo are also hoping for regulations to keep the bad apples out.

Now let’s get into the ground reality. Is anybody can do API-based trading?

Theoretically, API-based trading is built for system traders who can build their own trading systems.

API based trading requires

1)Trading Strategy.
2)Real-time Market Data.
3)Access to Broker API for Trade Executions

However, when comes to Indian Markets we have a fintech space evolving rapidly around this API-based trading and everyone is trying to solve the pain point of retail traders in a technical way. So it is highly important to understand the Retail based API trading much closer.

What are the different types of Retail Traders who want to pursue Automated Trading?

1)Traders who want to adopt readymade automated trading/investing strategies.
2)Traders who want to build their trading ideas to create automated trading/investing strategies with the help of freelancers/coders.
3)Traders who are also programmers can build trading strategies &automate on their own.
4)Traders who are looking for low code or no code trading solutions to build their trading strategies on their own.
5)Traders who want to learn to design, code, build and implement their own automated trading system.
6) Traders who want to participate in readymade strategies run by experts.

Category 1: Traders who want to adopt readymade automated trading/investing strategies.

This community is the largest one and many traders who belong to this category are thinking automated trading is an alternative to manual trading and would like to test their skills/learn automated trading. They are largely new to the field of automated trading/systematic trading and they need proper education on systematic trading and the know-how of handling automated trading systems.

But many of them from this category struggle to create their own trading strategies. Hence they look for easier solutions to go live with readymade automated trading strategies as early as possible.

Algomojo’s Stance: Neither inbuilt strategies are provided by Algomojo nor run any client’s strategies in the cloud on behalf of the client. Instead, Algomojo provides in-depth education and support on Systematic trading education to enhance the skill of the new algo traders who want to explore the world of automated trading. Only with proper education and tutorials, one can enhance the skill of such traders to make them independent when comes to automated trading. More video tutorials and frequent education on building an automated trading system are the keys to improve the learning curve for hassle-free automated trading.

Category 2: Traders who want to build their trading ideas to create automated trading/investing strategies with the help of freelancers/coders.

They are self-independent traders. Though they are lagging in programming skills to build their own trading strategies, they establish connect with programmers/freelancers who convert their trading ideas into programming codes for the traders. Freelancing portals like freelancer.com/upwork.com provide such freelancing services where one can hire coders and get their trading ideas to automated trading strategy and implement.

Algomojo’s Stance: This category of traders needs only coding/integration assistance. This breed of traders is largely increasing post the Introduction of API-based trading. Algomojo will be building plug-and-play modules that could simplify such traders’ requirements with minimal coding efforts.

Category 3 : Traders who are also programmers can build trading strategies &automate on their own.

This set of traders are self-driven and they know what to build and how to build their trading strategies. Largely speaking they are from the DIY trading community.

Algomojo’s Stance: As these traders with coding skills are self-driven and mostly from the developer’s community a basic tutorial could help them to make understand the working of API-based trading. The rest of the integration will be done by them on their own.

Category 4: Traders who are looking for low code or no code trading solutions to build their trading strategies on their own.

This set of traders don’t want to mess up with coding but their want to test their simple trading ideas via low code or no code trading solution where build a strategy is made simple and simple trading/investing ideas can be automated. This set of traders don’t want to spend enough learning on systematic trading but their requirement is basic and to automate/backtest some simple rules.

Algomojo’s Stance: As of now Algomojo doesn’t support this community and most of the customers at Algomojo are DIY traders. Algomojo is mostly striving to minimize the coding effort of the traders by introducing various libraries, sample codes & various execution modules to make the traders connect their strategies and go live faster with minimal or no software installation.

Category 5 – Traders who want to learn to design, code, build and implement their own automated trading system.

This set of traders are very hungry to learn to design, code, test build and validate their trading ideas. And they are the future DIY traders. This crowd is largely increasing in the recent past. And many of these traders are really struggling to create their own trading ideas and they are ready to take a deep dive to build their own requirements right from the scratch.

Algomojo’s Stance: Algomojo provides continuous education via short webinars, mentorship events to educate the customers properly to make them independent in converting their thinking/idea to automation and also provide the necessary skills to validate their trading ideas.

Category 6) Traders who want to participate in readymade strategies run by experts.

Though they are a small part of the crowd they are vulnerable to be manipulated. And easily get attracted to false claims. Such kinds of traders easily fall prey to illegal PMS vendors who claim to trade automatically on behalf of the clients.

Algomojo’s Stance: Algomojo platform does not offer any off the self Algo’s. And it is purely an automated trading platform and connecting bridge. Libraries, sample codes, and plug/play modules are offered to connect with trader’s trading system to simplify the Algo Execution requirement. It is completely traders responsibility to run their strategies in their own PCs/Servers and Algo traders has to take complete responsibility of the arising profit/losses.

The next series will address the most important concerns of Algo traders. If you have any questions to comment below to get your question addressed.

Algomojo
Finfolab Technologies