Algorithmic trading – algos in popular parlance – is increasingly becoming popular across investor categories with the share of such trades seeing a significant rise in the last few years.
Data from the National Stock Exchange (NSE) shows that algos accounted for 57 percent of all trades done in the equity cash segment in April. This was higher than the 54 percent share witnessed in FY25. The rapid rise can be gauged from the fact that this share was less than 50 percent till FY23.
Further, algos have penetrated even deeper in the equity derivatives — futures and options (F&O) — segment with their share as high as 70 percent in FY25. It was marginally lower at 69 percent in April but still higher than the previous years, shows NSE data.
Algos, also known as program trading, refers to using software or codes to design and execute trading strategies. Simply put, one could design a software to automatically trigger a buy or a sell order — or even a complex strategy involving both the cash and F&O segments — if certain parameters are triggered.
Incidentally, algos were once looked upon as a tool only used by institutional investors like foreign portfolio investors, hedge funds, fund managers of mutual funds or even deep-pocketed high net worth individuals (HNIs) to design and execute their trading strategies.
Market participants say that the recent explosion in the share of algos in the Indian stock market is primarily attributable to the use of such tools by the vast growing community of retail investors. Most of the modern-day trading platforms provide algo tools to their retail clientele as well, they say.
“While earlier, algos were only used by institutions, fund managers and those doing HFT trading, algos are now being widely used by the vast retail investor community as well. This has led to a significant jump in the share of algo trading in the Indian stock markets,” said Kunal Nandwani, Founder & CEO, uTrade Solutions, a firm that creates algo trading solutions.
“As the markets grow, the understanding level of retail investor about algos have also grown and that coupled with the improved capabilities of today’s trading platforms have all led to the increased acceptance level of algos in the overall trading ecosystem of India,” added Nandwani.
This assumes significance as many trading platforms now offer tools that allow investors to design an algo without even knowing any form of coding. They can input their views or requirement is plain simple language — some even offer vernacular language support — and the application does the rest.
Meanwhile, within the F&O segment, all sub-segments like index futures, index options, or even stock futures now see a significant majority of trades coming through algos. For instance, the share of algos in stock futures was 74 percent in April — a huge jump considering the share was less than 60 percent till FY21.
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