Wednesday, May 7, 2014

HFT and algorithmic trading in India

Algorithmic trading was introduced in India in 2009 and within a span of 5 years it has gained a considerable share in market. Some random facts and developments in the algorithmic trading scenario in India:
  • Order percentage: Orders received from co-location in cash market segment are around 70% of the total cash orders. In derivatives segment the number is even higher, around 95%. For the currency derivative segment the number is of the order of 25%. 
  • Volume percentage: In India, algorithmic trading comprises of about 20-30% of the total trading volume, which is much lower when compared to US(60-70%) and Europe(40-50%).
  • Latency: Round trip latency is the time taken from initiation of a order to receipt of its conformation. Round trip latency for co-location based connections is around 2 ms. This number should be contrasted against latency for leased line which is around 30 ms and that of VSAT connection which is around 700 ms. 
  • Strategies: In the initial days algorithmic trading was used to exploit arbitrage opportunities. Subsequently algotraders ventured into speculative trading (like market making, statistical arbitrage etc.). Lately, institutional investors have started using algorithmic trading platforms for efficient trade execution (buying/selling large quantities of stocks with minimal impact costs).
  • Regulations: SEBI has taken many proactive measures to regulate algorithmic trading. These measures include risk control checks at exchange and trader's end, half yearly audits of trading systems, pre-approval of strategies from exchanges, penalties on high daily order/trade ratio etc.

1 comment:

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