1. Home
  2.  |  
  3. News Capsule |  

Algorithmic Trading caused BSE Sensex and NSE Nifty to close at lowest level in 2015

May 6, 2015 11:00 IST

Algorithmic Trading: Usage of Computers to execute trades based on pre-defined instructions

The term Algorithmic Trading or Algo-Trading or Black-Box Trading was in news on 6 May 2015 since they triggered the two major stock indices Bombay Stock Exchange (BSE) Sensex and National Stock Exchange (NSE) Nifty to close at lowest levels since 17 December 2014.

\Algo-trading refers to those trade practices which are done by computers loaded with pre-defined instructions. In this, automated order execution engines perform trade without any human intervention when certain predefined market conditions such as indices reaching a particular level (whether in bullish or bearish conditions) are met.

Algorithmic trading is primarily used by institutional traders such as investment banks, pension funds, mutual funds, etc.

Advantages of Algo-Trading
• It helps in executing trade at a huge speed and frequency, not possible for a human trader. As a result, emotional human impacts on trading activities can be circumvented.
• It makes markets more liquid as more orders are placed in the market.
• It helps in identifying trading opportunities in a milliseconds based on the codes written by the trader ensuring that trading opportunities are not missed.
• It helps in identifying mispricing and instances of inefficiency very fast by rapidly closing in on arbitrage opportunities.

Disadvantages of Algo-Trading
• It increases the volatility in the market and stock prices by generating massive orders within few seconds.
• If erroneous programmes are allowed to run they can distort market prices to a large extent.

As per an estimate, Algorithmic trading accounts for a third of the total volume on Indian cash shares and almost half of the volume in the derivatives segment. Earlier in March 2012,the stock market regulator Security and Exchange Board of India (SEBI) issued an order saying that all the Algo-Trading orders must be routed through broker servers located in India in order to regulate them.

Now get latest Current Affairs on mobile, Download # 1  Current Affairs App

Is this article important for exams ? Yes3 People Agreed
Read more Current Affairs on: Algo-Trading , Sensex , Nifty

DISCLAIMER: JPL and its affiliates shall have no liability for any views, thoughts and comments expressed on this article.

Latest Videos

Register to get FREE updates

    All Fields Mandatory
  • (Ex:9123456789)
  • Please Select Your Interest
  • Please specify

  • ajax-loader
  • A verifcation code has been sent to
    your mobile number

    Please enter the verification code below

This website uses cookie or similar technologies, to enhance your browsing experience and provide personalised recommendations. By continuing to use our website, you agree to our Privacy Policy and Cookie Policy. OK