Mumbai3 days ago
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Trading with AI bots is increasing in the domestic stock market. According to SEBI research, in the financial year 2024, foreign institutional investors (FIIs) and proprietary traders earned Rs 59 thousand crore with the help of algorithmic trading in the futures and options market. At the same time, common investors, unaware of the power of technology, lost Rs 61 thousand crores.
According to the report, Prop Trader Desk earned approximately Rs 32 thousand crores and FII earned Rs 26,840 crores. Prop traders are financial companies or commercial banks that earn profits by doing direct trading. They do not take commission by investing on behalf of the client.
Here we are telling you everything you need to know about algorithmic trading…
How does algorithmic trading work?
Algorithms combine computer programming and financial markets to make precisely timed trades. There is no place for human emotions in this. Trading takes place on auto mode. But common people trade according to their understanding, in which there is more scope for mistakes.
How many people earned?
97% of FPI’s profits and 96% of prop traders’ profits came from algorithms. 306 out of 376 FIIs and 347 out of 626 prop traders used it.
Investors trade on 1-2% returns: According to Vinod Nair, head of research, Geojit Financial Services, big institutions like FIIs and prop traders trade in futures for 1-2% returns. Their orders are in crores, hence even 1% return is in lakhs. They do not succumb to greed. They have complete infrastructure of smart technology.
Small investors make mistakes due to greed: According to Nair, small investors do not book profits at the right time. They don’t even set stop loss at the right time. They usually take the risk of pursuing a deal in an effort to maximize returns or minimize losses. This proves to be the biggest mistake. Mobile phone is not the right platform for futures trading. There is not much scope for in-depth analysis or algo trading here.
Future trading of shares increased 40 times in 5 years: From 2019 till now, futures trading in the country’s domestic market has increased 40 times. F&O segment turnover reached a record level of Rs 502 lakh crore in February. This is more than the entire economy of the country. Meanwhile, market regulator SEBI has warned small investors on several occasions not to enter this market in view of the high returns promised by big institutions.