Capital market regulator SEBI in his new regulations gives access to retail investors to participate in algo-trading (Algorithmic Trading) which will provide better opportunity to retailers of better liquidity and faster order execution of trades. Before this new rule of SEBI, only institutional investors were allowed to trade in algo-trading. SEBI introduced this rule to facilitate better and safer participation of retail investors in algo-trading, and to manage the risk through stock brokers and stock exchange in aglo-trading SEBI reviews the existing regulatory framework to protect the interest of retailers and market sanity.
What is Algo-Trading?
Algorithmic trading also known as algo-trading it is a type of trading in which we use computer programs and algorithms to execute trade decisions automatically. All the algorithmic trades work on predefined criteria like price, timing, volume, and other conditions of markets. In algo-trading financial firms or traders after analyzing market information, they execute complex algorithms through which they buy or sell assets. As these complex algorithms follow a set of rules and it will automate the trade without human intervention. It provides speed execution of trade with minimal delay, and accuracy in trade because there is no human intervention in trade and it also helps in reduce the in costs by minimizing human need and performing backtesting of historical data of assets.
Also read- How to Choose the Right Option Strategy in Algo Trading?
Type of Algo-Trading Strategies:
Low frequency
In low frequency strategy operates few trades in hours or days like spot market movement in trend, arbitrage algo-trading and when stock down unusually fast ad selling when they rise again.
High Frequency
In high frequency strategy thousands of trades operates in per milliseconds like buying and selling of orders from small difference, statistical arbitrage and latency arbitrage.
What are the SEBI regulations?
For Retailers
Before this order, there is no other option available for retail investors to automate their orders in the market. The option for retailers to trade legally in aglo-trading is to get as set up at the exchange which is too much expensive from a retailer's point of view and remains the option of setting up algo-trading firms for the purpose of running high-frequency trade strategies. There are also other options but it has lack of clarity from regulators on these practices like Excel Macros, broker APIs, and more.
SEBI order gives new guidelines on APIs (Application Programming Interface), in this guideline, SEBI recognizes APIs as a legitimate practice and gives information on what retail traders and brokers can do and can’t do. In this regulation, retail investors who will use this to automate their trades as a life uplifting and not able to execute complex orders, or high-frequency strategies in trading which means if the order rate for retail investors is too high they require SEBI registration for execution of trade and if order frequency below the prescribed order then there is no need for registration approval from regulatory. APIs give the facility to retailer to connect their trading platform with a broker, In this retailers don’t need to register with SEBI for orders, and static IP addresses with APIs are whitelisted by a broker which reduces fraudulent activity and stops activities where one person executes an order for multiple persons.
For Brokers
Before the new regulations of aglo-trading there was always business to sell strategies and algos to traders. These brokers and service providers act as a bridge to persons who have strategies but don’t know who can help in code and developers to program their strategies. In new orders for aglo-trading it is obligatory for a broker to obtain approval from the stock exchange before offering it to retailers, any change or modification of approved algos is required to be pre-approved by SEBI and the broker must ensure APIs to avoid misleading or fraud activities & in this anything fraud happen broker will be responsible.
Also Read-What are the Most Popular & Profitable Algo Trading Strategies?
In new circular aglo service providers will act as agents for stock brokers and partner with stock broker for offering service to retailers. Services provided by broker categories in two parts.
- White box – In this, logic is known and easy replicable in algo-trading.
- Black box – In this, logic is not known in Algo to users.
In white box algos can be offered to any trader after registering with the exchange and in black box algos it is necessary to get a licensed of Research Analyst (RA) to offer service in black box algos. In black box service, it includes maintaining and publishing reports of strategy in a timely and delivering to customers. This new framework in Algo-trading comes into effect on 1 August 2025.
How to use Algo Trading with Moneysukh
TRADERADAR- Our Algo trading platform facilitates the trading of Algo strategies by market participants without the need for programming knowledge or coding. Through TRADERADAR retail traders will guide through the intricate world of Algo trading with unprecedented simplicity. Now retails traders easily create any Algo strategy with pre defined Stoploss and Target. Traders can create strategies in Options i.e Nifty, BankNifty, Sensex and in individual stocks also with years of Backtesting data at zero cost. Moreover we also provide Simulator trading, an user-friendly tool or you can say customised functionality developed to analyse and enhance trading strategies with the help of using historical data. Using a simulator you can reconstruct the historical market conditions and evaluate the performance of your trading strategy across different phases.
Also read-What is a Simulator in Algo Trading? Benefits & Top Features
