Algorithmic trading to put it in simple words can be stated as a tool which uses a 'decision support tool', which founded on pre-defined parameters, analyses market data, takes decisions and executes them. It is normally synonymous with programmed trading or automated trading.
It assists in reducing the time taken away to deal with market events. This also helps in solving the problem by increasing the volume of parallel processes that could be executed by a trader and removes occurrences of human errors and influence of emotions in decision making. Also, these decisions are established on mathematical models which are built by content matter experts. Algorithmic trading will probably be the automation for these mathematical models.
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Why such a Hue and Cry about Algorithmic Trading?
The below piece of info will clear the present hue and cry related to algorithmic trading:
Capital markets regulator SEBI today discarded a ban on algorithmic trading products, although it said it really is “worried” because of the rapid adoption of such tools and demanded appropriate risk management systems for being implemented by market players using them.
SEBI will not be considering banning these items, the Chairman, Mr U.K. Sinha, told reporters at the sidelines of the CII meet on capital markets here, though he added, “But we are most certainly worried.”
The market place regulator is slated to conduct an analysis of its risk management system later in the week and a ban on algorithmic trading products was apprehended by certain quarters following a technical glitch that resulted in the cancellation of every derivatives deals at the BSE during Muhurat trade on Diwali (October 26). You can check out this BSE Muhurat Trading Fiasco which has given a new dimension to Algorithmic trading.
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