30 Apr 2015 19:52 IST

Algo Trading

In the first video of BLoC's series A-Z of Stock Markets, Aarati Krishnan demystifies algorithmic trading

Twenty years ago, the Indian stock market had already moved to an electronic form of trading, where dealers, traders and investors punched in their trades directly into a computer.  Algo (algorithmic) trading is the triggering and execution of buy or sell orders in securities by an automated computer program that is set to certain parameters.

In the video, Aarati Krishnan explains how orders are executed in micro-seconds, allowing traders to take advantage of market opportunities that may last only a few seconds at a time, and in what way algo trading is different from high-frequency trading (HFT).

This kind of trading, which often goes in tandem with algo trading, uses automated platforms to execute large orders at ultra-fast speeds, and is often used by large institutional investors, usually of a global origin, using servers with very large capability, often co-located in or near the stock exchange’s servers, so that the trading time can be brought down significantly.

The video also explains the various kinds of algos and the purpose of each one.