Have you paid attention to how more trades in India are made by machines than by humans? That’s all thanks to algorithmic trading that uses pre‑written code to place trades in milliseconds. The concept is becoming popular in India. In this article, let’s walk through what’s happening and why it matters for your investment.
What’s Algorithmic Trading Anyway?
Algorithmic trading, often just called “algo trading” is when computers, not humans, make buy and sell decisions in the stock market. Traders write code that tells a machine exactly when to trade, based on factors like price, timing, or volume. These instructions might be as simple as “buy when a stock hits ₹100,” or as complex as mixing multiple indicators and models.
In India, algo trading started in 2008 when SEBI introduced DMA (Direct Market Access), allowing faster and more efficient access to stock exchanges. What really changed the scenario was the ability for these programs to spot tiny price differences or trends and act immediately, often in microseconds, much faster than any human could manage.
There are a few popular strategies that algos follow. One is trend-following, where computers buy when prices move in a certain pattern, like a 50-day average crossing a 200-day average. Another is statistical arbitrage, where the algo exploits small inconsistencies in prices between related stocks.
Then there’s market making, where algos place buy and sell orders to profit from the tiny gaps between bids and asks. Speed and precision are the benefits of algorithmic trading. Algos remove emotion from trading, make fewer mistakes, and can chip away at transaction costs by catching opportunities that blink and you miss.
But it’s not all perfect; algorithms can still chop through liquidity fast or malfunction if the code is wrong or the network crashes. These systems are financed heavily by institutional players like hedge funds and investment banks. Still, now even retail brokers and others offer APIs so that everyday investors can try algo trading too.
How Big Has It Gotten in India?
The Indian algo‑trading market is growing at a CAGR of 14% and is expected to reach USD 2.31 bn by 2030. Nearly 50-60% of trading volume in Indian equities is now algorithm-driven. A SEBI study revealed that 97% of foreign institutional investors (FPI) and 96% of proprietary trading profits in FY24 came from algos. Yet, only around 13% of individual retail traders use algos.
Why the Jump?
- Speed Matters: Algorithms execute trades quickly and cheaply.
- Tech Boost: Cloud, AI, machine learning, and high‑frequency trading (HFT) are now part of mainstream trading.
Retail algos are just taking off. SEBI has now extended access to retail investors, mandating exchange approval, unique order tags, and auditing.
What Does it Mean for You?
Nowadays, many platforms offer no-code algo trading, which has led many new traders to try it out. However, as a retail trader, you should understand that high speed does not guarantee gains. You could make money, or even lose money. So you should keep in mind that algo-trading involves risks too.
Using AI and ML-based algorithms can help, but only if you’re aware and cautious. With SEBI oversight, retail access is safer, but success isn’t automatic.
You should focus on learning, testing (start with paper-trading/demos), and don’t risk more than you can afford to lose.
Conclusion
Algorithmic trading has gone from niche tech to a core part of India’s markets, with half the volume now computer-driven. But with great speed comes great responsibility. Do your homework and trade safely. Happy trading!
