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Algorithmic trading in India: Is it doable?

Published on Wednesday, December 16, 2020 by Angel Broking | Modified on Thursday, May 13, 2021

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Algorithmic trading in India: Is it doable?

The talk around algorithmic trading isn't new. While it became yesterday's talk in India much later than the US and elsewhere, Indians are still curious about what algorithmic trading really is, and whether it is doable for them, While some look for algorithmic trading for the right reasons, they are often intimidated by the plethora of complexity and technicalities that surround algorithmic trading. But not anymore. In this article, we will not only simplify algorithmic trading for first timers, but also demystify the misconceptions that surround it.

Lets begin with elephant in the room

Understanding algorithmic trading is simpler if you can understand how it really works. At the heart of algorithmic trading is algorithms making trading decisions in the market. That's right - these algorithms are usually market strategies that are coded into a language that computers can understand. These algorithms constantly sift through real time market data to search for conditions that must be met for a strategy to come into effect - in other words, when programs see that all conditions of a specified strategy are being met, they generate a signal to buy, sell, or hold - depending on the situation. While some algo traders go on to automate these signals to make a program execute the trades on its own - and others simply feed these signals into their trading account, so that they can be executed with a single tap.

Go beyond the process

So now we know how algorithmic trading works. But knowing this isn't enough to do algorithmic trading, is it? Then let's dig deeper. For algorithmic trading to work, you need to be able to feed market data to your program, and then act upon it by making trades. This is where the next big concept comes in - that is, APIs.

To interact with the stock market, your algorithmic trading program need not be built from scratch anymore. APIs, or Application Programming Interfaces are a paradigm in modern computing, that allow developers to expose the desired functionalities of their own programs for others to use. For example, if a broker has a digital trade execution engine that interacts with the stock exchanges, they can simply open certain functionalities like real-time market data streams, or the trade execution engine for others to access through their programs.

Trading APIs essentially allow you to perform critical trading functions - like accessing market data on stocks in real time, executing trades through an account, or managing account-related data digitally. SmartAPI is one such example of a trading API, that is made available by Angel Broking for free. With trading APIs, your path to actually doing algorithmic trading is made much simpler - understand how, in the next section.

Trading APIs: simplifying algorithmic trading for everyone

Trading APIs simplify algorithmic trading for not only retail investors, but also those who want to build a business around digital trading. With trading APIs, one can simply focus on converting their market strategies into algorithms that computers can understand, usually in a language of their own choice - it can be Java, Python, Go, NodeJS or even a statistical language like R. Once your strategies are implemented as algorithms, you need to backtest them on historical data, and take them live if the results are satisfactory.

Trading APIs let you retrieve live market data, connect your trading accounts to your program, send trade signals to accounts and execute trades through these accounts. But to do all of this, you simply need to insert a piece of code into your program to make the said things happen - instead of writing the code from scratch. Tedious routines like authentication, mismatch in data structures, execution signals and account information can be implemented in one go in your script - just like plug-and-play. Sounds cool, right?

Well, only if you can make it work for yourself that easily - when selecting a trading API to wet your feet, it is crucial to look for the following characteristics:

  1. It should not sink your money - apart from the cost of executing trades, some trading APIs also charge a fixed fee for their users. Look for free trading APIs, or run your calculations before you pay upfront money to access these functionalities. For example, SmartAPI by Angel Broking is completely free.
  2. It should be easy to understand - Trading APIs provide you functionalities by inserting snippets of code into your program. Documentations like this explain what these pieces of code do, how they work, and where they fit in the puzzle. Before choosing your trading API, look at its documentation.
  3. Don't forget the power of support - Some trading APIs simply provide functionalities to their users and documentation is intended to help them navigate their way to the finish line. But others provide further support beyond a detailed documentation - in the form of helplines, support teams and forums. If you are stuck at a problem in your specific environment, you should be able to consult others, and how they fixed the same problem when they encountered it.

With these three things in mind, you can easily take your trading practice up a notch. Imagine not having to sift through the digitz on your own, and having a hawk's eye on the market 24x7. In the past, algorithmic trading was an area of interest solely for institutional investors - but today, the game is changing. It is these trading APIs that have made algorithmic trading accessible to everyone. Pick wisely, and read more about how to set up your own algorithmic trading practice. Do some research, pick a good trading API and start building - algorithmic trading is no longer as difficult as it used to be.

 

Know More about SmartAPI by Angel Broking

 

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