SEBI warns investors against unregulated platforms offering algo trading

 

Security board and exchange board of India (SEBI) the regulator of the capital market regulator altered its investors against dealing with unregulated platforms offering algorithmic trading and against sharing sensitive personal details with such businesses, as such unregulated platforms have no customer grievance redressal ensured mechanism.

The statement comes after the Securities and Exchange Board of India (SEBI) noticed that many unregulated platforms are offering automated services for investors. Claims of huge returns along with ratings are being marketed, with similar claims on future returns.

 

Algorithmic trading uses a computer program that follows a defined set of instructions (an algorithm) to place a trade. The trade, in theory, can generate profits at a speed and frequency that is impossible for a human trader. The defined sets of instructions are based on timing, price, quantity, or any mathematical model. Apart from profit opportunities for the trader, Algo-trading is systematic by ruling out the impact of human emotions on trading activities.

Example:

1.Buy 50 shares of a stock when its 50-day moving average goes above the 200-day moving average. (The moving average (MA) is a simple technical analysis tool that smooths out price data by creating a constantly updated average price. The average is taken over a specific period, like 10 days, 20 minutes, 30 weeks, or any period the trader chooses.)

2.Sell shares of the stock when its 50-day moving average goes below the 200-day moving average.

Using these two simple instructions, a computer program will automatically monitor the stock price (and the moving average indicators) and place the buy and sell orders when the defined conditions are met. The trader no longer needs to monitor live prices and graphs or put in the orders manually. The algorithmic trading system does this automatically by correctly identifying the trading opportunity.