Mihir K. Malani
Capital markets in India have gone through a significant technological upgrades over the past decade. Due in part to the innovations led by market participants, both institutions as well as individuals and also to regulatory bodies showing a clear intent to make technology a priority in the sector.
While interest in new technologies continues to grow, some trends have changed the face of the industry. For ages, automated trading has been dominated by large trading desks, hedge funds and institutions due to the technology infrastructure and investments required.
However, this seems to be changing as the investor of today is more aware, knowledgeable and in most cases, possesses the technological know-how required to create and use smarter investment and trading tools.
Many HNIs have their own proprietary strategies backed by years of research and some even have well equipped development teams working on automation of these strategies.
Developing new trading strategies often requires dealing with large amounts of historical data. While some of it can be obtained for free from designated websites, more specialized and detailed data like live prices, intra-day trade data, etc. can only be sourced from authorized vendors often for a fee.
This, however, is money well spent as data plays a critical role in helping investors create models as well as back-test them for various market scenarios.
With powerful databases like MongoDB, managing financial datasets is easy allowing users to create powerful models handling large amounts of data on the fly.
Investors who are market savvy but lack technology capabilities take to state-of-the-art trading tools provided by some brokers. These tools provide clear and actionable information like charts, live news, etc. and tools like strategy builders and rule-based systems which are easy to use and do away with the need for programming skills.
Some of these have made their way to mobile devices, making sure investors are always connected and capable of making smarter trading decisions even on the go.
Another notable trend has been the increased investor interest in options trading. Given the sheer complexity coupled with risks involved, options trading had been a rather unchartered territory for investors and non-institutional traders.
However, with the increase in availability of sophisticated trading tools and increased awareness on options as a trading instrument, many investors have taken the effort to study and participate in options trading.
This has also been a result of some much-needed hand holding by broking and advisory firms by way of options focussed investor education programs.
Moreover, built-in libraries from programming languages like Python help traders analyse and understand the mathematical aspects of these instruments with regards to pricing and risks.
Done right with the appropriate tools and the right amount of discipline, options trading has turned out to be an interesting avenue for investors and professional traders.
Having covered research, historical data and software implementation, the only bit left is exchange connectivity. This is where trading APIs play an important role in that they allow investors to connect to the exchanges via the broker’s network thus providing seamless connectivity.
Most broking companies today offer trading APIs through a subscription model. Thus, by offering last mile connectivity, brokers take care of the logistics, hardware requirements, latency as well as exchange compliance thereby making it easy for clients to plug in their strategies and start trading.
Although technology has improved the overall experience of trading and investing, financial markets remain prone to shocks and sudden price movements. With large exposures this could mean a P&L swing of lakhs of rupees within a few seconds.
In view of this, it is extremely critical that such scenarios are identified in real time and the turn-around time for any kind of response is kept low.
This brings us to the conclusion that broking companies investing in strong risk management systems and processes will be the ones able to offer smarter trading tools and tech enabled products to their end clients, keeping them ahead of the curve.
The ones who stop short of this, might need to brace themselves for difficult times ahead.
(The author is Founder Nerve Solutions)
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