Securities and Exchange Board of India (SEBI) has floated a consultation paper on regulatory framework for algorithmic trading (algo trading) by retail investors to make such trading safe and prevent market manipulations.
- In stock market parlance, algo trading refers to any order that is generated using automated execution logic. It automatically monitors the live stock prices and initiates an order when the given criteria are met.
- This also frees the trader from having to monitor live stock prices and initiate manual order placed.
- This kind of unregulated/unapproved algos pose a risk to the market and can be mis-used for systematic market manipulation as well as to lure the retail investors by guaranteeing them higher returns.
- The potential loss in case of failed algo strategy is huge for retail investor.
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