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Context:
Securities and Exchange Board of India Proposes Regulation for Algorithmic Trading.
Highlights:
- Sebi proposes measures to regulate algorithmic trading by retail investors.
- Retail investors are individuals who buy and sell financial securities for personal financial goals, using their own money. They generally invest in smaller quantities, using brokerage accounts, mutual funds, or fintech platforms.
- Proposals aim to introduce checks and balances for stock brokers and exchanges.
- Currently, algo trading is dominated by institutional investors.
- Institutional investors are organizations that pool money to buy securities, real estate, and other assets, or to originate loans. They are large entities that manage large sums of money for their clients or members, and are often considered to be more knowledgeable than retail investors.
Know about: Retail Algorithm Trading Rules?
What is Algorithmic Trading?
- Automated process of trading where the software performs buying and selling activities based on pre-defined norms.
- Examples
- Arbitrage, High-frequency Trading (HFT), and Pairs Trading.
- Arbitrage
- Based on the minute price changes on the same securities which are traded on different exchanges.
- HFT
- large volumes of orders which are executed in very fast speeds, take advantage of price variations of fractions of a cent or less.
- Pairs trading
- It is the simultaneous buying and selling of a related pair of assets.
- Legal in India; regulated by SEBI.
Also read: Securities and Exchange Board of India (SE
