SEBI New Circular:If you invest money in the stock market, then this news is very important for you. SEBI (Securities and Exchange Board of India) has issued a new circular, which has brought new rules related to trading. Let’s know about it in detail.
SEBI’s New Circular: New Rules for Retail Algo Trading
First of all, understand that Algorithmic Trading is also called Automated Trading or Quantitative Trading. In this technique, fast and accurate transactions are done by using computer algorithms, without any human interference.
Now SEBI has issued new rules for algo trading:
New Rules for Retail Traders:
Now retail traders can do algo trading only through brokers.
Algo providers will work as agents of brokers.
Only brokers can provide algo facility, no third-party.
It will be necessary to get approval from the exchange for every algo.
How does Algo Trading work?
In algo trading, shares are bought and sold through pre-determined mathematical formulas and logic.
Its advantage is fast speed (execution in milliseconds), high accuracy, and low cost.
What is the role of trading algorithm?
Algorithm is created: To generate buy or sell signals based on market conditions.
Order Fulfillment: As soon as conditions match, the trading system automatically places the order.
Fast Execution: Computers can process millions of orders per second comparable to humans.
Real-Time Monitoring: Strategy can be changed by monitoring market fluctuations live
Main Types of Algo Trading:
Market Making: Continuous trading takes place in small margins between Bid and Ask.
Arbitrage Trading: When the price of the same stock is different on two different exchanges, then the algo system buys at the lower price and sells at the higher price.
Trend-Following Algorithms: Trading takes place on the basis of Moving Averages and other indicators.
VWAP (Volume Weighted Average Price): Trading is done on the basis of the average volume of the whole day.
High-Frequency Trading (HFT): Very fast trading takes place in milliseconds, in which small profits are made.
Advantages of Algo Trading:
Speed & Efficiency: Algo trading can complete thousands of trades in a second.
High Accuracy: The possibility of human errors is greatly reduced.
Low Cost: It is cost effective as compared to manual trading.
Algo trading is the future of modern trading. It is fast, accurate and effective, which is very beneficial for institutional investors, big funds and professional traders. But, technical understanding and risk management is necessary for this.
So if you also trade in stock market, then understand the new rules of SEBI carefully and make your strategy accordingly.
