Definition
Algorithmic Trading
Algorithmic trading is the use of computer programs that follow pre-defined rules on price, timing, quantity and other variables to place and manage orders automatically, with little or no human intervention per order.
In India, algorithmic trading covers everything from a broker's execution algo that slices a large institutional order to fully automated proprietary strategies run by quant desks. The exchanges (NSE, BSE) tag every order as algo or non-algo, and brokers must obtain exchange approval for each strategy before deploying it.
SEBI has progressively tightened the framework, requiring unique strategy IDs, audit trails and, more recently, a regulated route for retail algos through brokers and registered algo providers. The aim is to ensure that automated order flow is supervised, that runaway algos can be killed, and that the market is not flooded with manipulative or destabilising order patterns.
Related terms
- Co-locationCo-location is the practice of placing a trading member's servers physically inside or immediately adjacent to the exchange's data centre so that orders reach the matching engine with the lowest possible latency.
- Execution AlgorithmAn execution algorithm is a program that works a large parent order into many smaller child orders over time to minimise market impact and achieve a target benchmark such as VWAP or the arrival price.
- Quantitative TradingQuantitative trading is an approach that uses mathematical models, statistics and computer algorithms to identify and exploit trading opportunities, replacing discretionary judgement with systematic, data-driven rules.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.