ALGO TRADING : Understand risks, have realistic expectations

 ALGO TRADING

Understand risks, have realistic expectations

The Securities and Exchange Board of India (SEBI) has proposed a framework to enable retail investors to participate in algorithmic (algo) trading. The draft circular, titled Participation of retail investors in algorithmic trading, outlines the process for approval and registration of algos.

Platforms which offer algos or readymade strategies will need to get them approved through the broker. The broker will, in turn, have to register all algos and strategies with the exchanges. The circular is expected to provide retail investors access to registered and approved algos, ensuring their interests are protected. 

How it works

Algo trading automates decision-making in the trading process. The key difference from traditional trading is that all decisions-what, when, and how much to buy or sell – are made by a computer system through an algorithm. Algorithms operate based on preset parameters, removing emotional biases of traders.

Brokers facilitate automation through an Application Programming Interface (API), which connects the trader’s algo to the broker’s platform. Popular platforms like Zerodha and Upstox Pro offer APIs to retail investors. Algorithms can handle huge volumes of trade at incredible speeds.  More than 50 per cent of the trade volume in the market comes from algos.

 

Disciplined trading

Algo trading offers several advantages. Algo trading eliminates biases by adhering to a predefined risk model. It ensures structured and disciplined trades. Delays in manual execution can result in slippage. But algos execute trades almost instantaneously, minimizing this issue.

Algos allow reads to occur 24 X 7 without requiring constant monitoring. Algos can also analyses tones of data in real-time and make decisions faster than any human.

Back-tested results may not be replicated

Algo trading comes with its share of risks. Algos can falter when systemic failures, API errors, and market anomalies occur. Algo trading is hands-free but not risk-free. Investors need to monitor it and intervene when necessary.

Rare and unpredictable market shocks can disrupt the performance of algos, especially amid high volatility. When the market plummets, algos may act only at the stop-loss limit, potentially after significant losses. A human, knowing the market may go down, can respond preemptively. Investors should not treat the results of back-testing as being predictive. Back-testing as being predictive. Back-testing provides insights, but past performance is not always indicative of future results.

Understand before you invest

Many enter this arena without a detailed understanding of how their algo works. Diligently review information on the strategy, risk profile, potential losses, and expected gains before investing. Unrealistic expectations are also common. Investors hear stories of quant funds like Renaissance Technologies delivering astronomical returns and assume similar returns are guaranteed.

Should you go for it?

Algo trading suits investors who prefer a data-driven, objective approach and are comfortable with technology.

A basic understanding of markets and risk management is essential. Risk-averse investors may go for traditional trading or algos with lower risks. They could go for algos with maximum drawdown of 10 per cent.

 

TRADING FRAMEWORK DECODED

Brokers can offer algo trading facilities to retail investors only after obtaining the stock exchange’s approval for each algo

Orders above a specific threshold (of orders per second) will be categorized as algo orders

Algo orders will have a unique identifier

Modifications to an algo must be approved by the exchange

Retail investors, who develop their own algos, must register them through brokers and can extend usage to immediate family members

Exchanges will have a kill switch for malfunctioning algos

 

Govt. staff can get reimbursement for emergency care at non-CGHS hospitals

The Delhi High Court has ruled that government employees are entitled to medical reimbursement in an emergency, even if the hospital is not empaneled under the Central Government Health Scheme (CGHS).

How will this case benefit government employees?

This judgment will ensure that the employees are not subject to any undue hardship or distress during emergencies.

 

How to find CGHS empaneled hospitals?

You can find a comprehensive list of empaneled hospitals and diagnostic centres at cghs.nic.in.

On the website, there is an option to search for hospitals by city. You can select your city from a dropdown list to view the hospitals available in that area. The site provides detailed information about each empaneled hospital, including their addresses, contact numbers, and the services they offer. This can help you determine which hospital meets your medical needs. Once you identify potential hospitals, it is advisable to contact them directly to confirm empanelment status and inquire about specific services covered under CGHS.

 

For More Details: Pooja Manoj Gupta, visit www.giia26.com

Email: pmgiia26.com Mobile  9868944340