Algorithmic trading is legal in India and nearly 40% of the trades in the Indian equity markets are driven by automated algorithms. In developed countries, more than 70% of the trades are done through automated algorithms.
In India, if you are a retail investor you will have to do a lot of work in order to automate your algorithm as exchanges in India don’t allow retail individuals to automate strategies.
Requirements to Start Algo Trading in India
- Need to be registered as an Authorized Person on the exchanges. The one-time cost of registering is Rs. 3000/segment/exchange.
- Once registered, you would need a dealer terminal from your broker. The person operating the terminal needs to have cleared the NISM Series VIII Certification
Once the initial setup is done you will have to get the algorithm approved and tested so that exchanges can be sure that your algorithm will not have a considerable breakdown impact on the market. These days many stock exchanges like Fyers, Upstox, and Zerodha offer their APIs to facilitate Algo trading in India.
Strategy Approval for Algo Trading in India
- The algorithm must be approved by a Chartered Accountant or a Certified Auditor.
- The strategy has to now be tested on the exchange UAT (User Acceptance Testing) site and by participating in the mock trading sessions conducted by the exchange.Algo trading comes at a cost. Just because an algorithm is trading on your behalf doesn’t mean you don’t have to pay brokerage for each trade. Plus, there is a platform fee.
- Once the demo is provided to the exchange and is approved, you can automate the strategy. The entire process can take up to 1 month
In addition, since the brokers know how tough it is for retail investors to automate their strategy, they charge additional fees for trading. For an instance, they may charge a trading cost of 500-600 per Crore trading amount in addition to the brokerage charges.
Softwares for AlgoTrading in India
For the third-party software and data feed, you will also have to set up your machine. The steps would be
1. Build your custom front end or buy any of the available ones such as Amibroker, multicharts, MetaTrader, etc.
2. Buy data feed from a data vendor to feed the live data into the front-end software and generate algorithm signals.
It is really tough for retail to get algorithms automated in India. A different route is through Interactive Brokers who have an API to send trades. It is comparatively easy to set up and manage too.
