GujUpdates Special:SEBI seeks to protect retail investors from fraud by unregulated entities



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In an advisory paper recently released by the markets regulator SEBI

Markets regulator Sebi has recently issued an advisory paper calling for a framework for regulating Algo trading for retail investors. Brokerage firms, on the other hand, have objected to market regulator SEBI’s proposal to treat all orders issued by the Application Programming Interface (API) as separate trading, saying it could affect growth. What is Algo Trading and what will be the effect of the new order of SEBI? Find out, Jay Prakash Gupta, founder of finance company Dhan …

What is Algo Trading?
Simply put, algorithms use technology to automatically buy and sell trading securities. Traditionally, humans analyze companies, sectors, businesses, prices, and other data to determine when to buy or sell. But this data can also be analyzed automatically by a computer. If you program the algorithm properly, your computer can place orders automatically and very quickly.
What are the benefits of Algo Trading?
Algo trading can be done very fast, which is not possible to do manually. For example, if the logic is set to buy a stock, buy it whenever the price reaches 100 and sell it at 102. In Algo trading this will happen automatically without any human intervention. The trader is relieved to monitor the stock full time and place the order manually.

What are the risks associated with Algo trading?
There are some risks involved in using advanced algo trading programs during high frequency trading. Massive volatility in the market is traded several times in a few seconds. And the risk of damage increases. Also, Algo Trading is not suitable for long term investors who want to buy and hold stocks. This is useful only for those who do intra day trading.

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Algo trading is allowed in which countries?
Algo trading is allowed in major world markets. The concept was introduced in the United States in the late 1980’s, and in 2012 more than 50 percent of the U.S. equity trading was done by Algos. Algo trading accounts for up to 80 per cent of foreign exchange. Algo Trading was approved in India in 2008. Algo trading is still less than 50% in the country. The main part of this is to find and trade the price difference between the two exchanges.

Will SEBI ban Algo trading in India?
SEBI has always been on the side of the market and its advice is not aimed at banning algo trading. The rules prepared after review by the regulator will bring more transparency in the market. SEBI’s main concern is to ensure that retail investors do not lose capital in unregistered companies that claim guaranteed or high returns through algo trading strategies.