Sebi Circular: If you invest money in the stock market then this news is very useful for you.
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SEBI New Circular: SEBI-Securities and Exchange Board of India has issued a new circular after the stock market closed. This circular has brought new rules related to trading. Let us tell you in detail.
SEBI issued circular on retail algo trading- First of all, let us tell you that Algorithmic Trading is also called Automated Trading or Quantitative Trading. This is a trading technique in which the computer makes fast and accurate transactions using algorithms. There is no human interference in this.
Now SEBI has issued new rules related to this. SEBI’s circular has also come. The new rules state that retail traders will be able to do algo trading only through brokers.
Algo providers will act as agents of the broker. Only the broker will be able to provide the algo facility, there will be no third party. Exchange approval will be necessary for every algo.
In algo trading, shares are bought and sold using pre-determined mathematical formulas and logic.
It is beneficial for investors and traders due to its fast speed (execution in milliseconds), high accuracy, and low cost.
The investor or firm creates a trading algorithm- This algorithm generates buy or sell signals based on market conditions.
The algorithm fulfills the order- As soon as the pre-determined conditions are met, the trading system automatically places the order.
Fast and high speed orders- Computers can process millions of orders per second compared to humans.
Real-time monitoring and strategy changes- The algo system monitors market fluctuations live and changes the strategy accordingly.
How many types of algo trading are there- Market Making:– In this, continuous trading is done in small margins between Bid and Ask.
Arbitrage Trading:- When the price of a stock is different on two different exchanges, then algo trading takes advantage of this and buys it at a lower price and sells it at a higher price.
Trend-Following Algorithms:- This algorithm trades on the basis of moving averages and other indicators.
Volume Weighted Average Price (VWAP):- Trading is done by dividing it on the basis of the average volume of the whole day.
High-Frequency Trading (HFT):- In this, trading is done at a very fast speed (in milliseconds), from which small profits are extracted.
Advantages of Algo Trading – Speed & Efficiency – Algo trading completes thousands of trades in a second.
Algo trading is the future of modern trading, which is fast, accurate and effective. It is very beneficial for institutional investors, big funds and professional traders. However, it requires technical understanding and risk management.
