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Algo Trading

Algo trading involves leveraging software programs for automatic trading.

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Algo trading involves leveraging software programs for automatic trading.

Algo trading or algorithmic trading is done using powerful computers. Software Programs designed by traders or companies automatically monitor the market, identify opportunities and execute trades or positions. The degree of manual intervention in algo trading depends on the needs of the broker and the sophistication of the programs. Some programs work without any manual intervention.

Algo trading has been in existence since 2008 and was initially offered only to institutional investors. This product is now extended also to the retail/individual investors by some of the brokers. For profitable algo trading, one must have sound knowledge of the markets, trading strategies, technical indicators, and adequate coding skills. Zerodha Streak is an exception that allows retail investors to participate in algo trading with zero coding knowledge.

Algo trading workflow - How does algo trading work?

Algo trading provides a systematic and disciplined approach to trading. Let us have a look at the steps involved in building an algo:

  1. Formulation of strategy

    This is one of the most crucial step in an algo. Before you start algo trading, you should have a clear picture of the stocks you want to trade, profit targets, loss-bearing appetite, and trading strategies.

  2. Applying the strategy

    The next important step is to input the correct parameters to decide the entry point, exit point, stop loss, and target profit. You also need to select the right technical indicators that suit your trading strategy for an algorithm to perform well.

  3. Backtesting

    Once the strategy gets applied, you can backtest the algo to check if they are performing as expected. The backtest runs on the historical data and generates trading signals for you.

  4. Optimizing the strategy

    If the backtest does not provide satisfying results, you can optimize your algo by changing the trading strategy and adding the right indicators.

  5. Paper trading

    It is an optional step and may not be offered by all brokers. Paper trading provides a virtual trading experience to investors without risking any capital in the live markets.

  6. Deployment in live markets

    Once you are comfortable and satisfied with the backtest results and paper-trading experience, you can deploy your strategy in the live markets and let the system generate the trading signals for you.

Algo Trading Strategies

Trading strategies play an important role in algo trading as choosing the right trading strategy can make algo trading profitable. Thus, it is necessary to understand its basics so that they can be rightly applied.

Various trading strategies exist in the market. Some of the commonly used trading strategies include Trend following strategies, Market-making strategies, Scalping strategies, Stop loss modification strategies, arbitrage strategies, etc.

Some brokers also offer pre-approved algos that use jobbing strategy, pivot strategy, bulk buying/selling strategy, pair trading strategy, etc. The investors can use any of the algos that best suit their requirements or create their own algos.

Algo Trading Software

Algo trading software comes in two parts:

  1. Trading API provided by brokers to access the exchange
  2. Software to write, test and deploy the trading strategies

Trading API is offered by the stock broker. The broker charges a monthly fee for this API in addition to the brokerage charges.

Brokers offering Algo Trading API

Broker Name API Name


Kite API


Fyers API

Alice Blue



Open API



Angel Brokin



Open API




AlgoTiger API

A trader can write his own alog trading computer program or use the 3rd party algo trading platform.

3rd Party Algo Trading Platform

There are various algo trading software's available in India which requires almost no computer programming skill. A retail individual customer can write, test and deploy trading strategies using the website made available by the company.

The 3rd party algo trading platforms are flexible to work with different stock brokers.

Algo Trading Platform

Algo Trading Platform Offered by Brokers


Zerodha, Angel One


Any broker that offers trading API.


Any broker that offers trading API.

Algo trading charges

The algo trading charges may differ from broker to broker. The brokers generally offer a free trial period to investors to get an experience of algo trading. Post the trial period, you can opt for algo trading subscription plans as per your needs. You get access to a specific number of backtests, strategies, and live deployments based on the subscribed plan.

Currently, there are not many brokers that offer algo trading to retail clients. You need to check with your broker for the algo trading charges. Some brokers may even have different brokerage charges for algo trades.

Algo Trading Example

Let's have a look at a simple example of algo trading.

You feel that the price of a particular stock, ABC, will go down over a period considering its bearish trend. You aim to buy that stock at a price lesser than 5% of the current market price and then sell it off when the price goes above a set target. With these conditions, you can create your algo based on the trend-following strategy and define your entry and exit points. Once the algo gets created, backtested, and deployed in the market, the system will generate trading signals for you as soon as the set conditions get met.

You need not constantly sit in front of the screen to track the markets nor get emotionally moved with market sentiments and enter the trade at the wrong price.

With algo trading, you can set your entry and exit parameters as per your goal. To make the algo trading profitable, you need to apply the trading strategies that suit your plan.

Algo Trading Benefits

  • Quick order execution with utmost accuracy at the best possible price
  • Helps disciplined and systematic trading decisions with no emotions attached to it
  • Facility to backtest to check if a trading strategy works as expected.
  • Offers a virtual experience by way of paper trading before deployment in live markets
  • Help reduce transaction costs as algo trading doesn't require people to supervise or constantly monitor the markets
  • Higher chances of earning handsome rewards.

Algo Trading Disadvantages

  • System failure may lead to opportunity loss
  • Algos can fail miserably if parameters not defined correctly
  • Generally requires basic coding or programming knowledge
  • Requires sound knowledge of the market, trading strategies, and technical indicators
  • Not all strategies can be automated

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Frequently Asked Questions

  1. 1. What is Algo Trading?

    Algo trading is automated trading by the system based on a predefined set of rules entered by a human.

    Algo trading is gaining popularity amongst investors as it helps save time and increases the chance of earning good profits. Algo trading requires sound knowledge of the markets, trading strategies, and technical indicators. Most of the algo trading platforms also require basic coding skills to help define and create your algos.


  2. 2. Is algo trading profitable?

    Yes, algo trading is profitable if deployed correctly.

    Algo trading gives handsome rewards provided you know the strategies well and have applied them correctly. For algo trading to generate handsome rewards, you need to do proper backtesting with correct risk management techniques to check if the algos created are working as expected.


  3. 3. Is algo trading allowed in India?

    Yes, algo trading is allowed in India and is legal.

    India introduced algo trading in 2008 with SEBI opening the doors of algo trading for institutional investors. With the evolution in algo trading, many brokers have extended algo trading to retail investors as well. Zerodha, Alice Blue, Upstox, 5 paisa are amongst the few brokers who provide algo trading platforms to retail clients for algo trading.


  4. 4. Is algo trading safe?

    Algo trading is safe when you have a proper understanding of the systems, markets, trading strategies, and coding skills.

    Algo trading is worth it as it helps conduct emotion-free trading by not buying and selling at the wrong prices which, otherwise gets done on account of fear and greed. Algo trading may seem complex due to various factors involved, but it is not an impossible task. Algo trading helps generate higher profits when applied correctly.


  5. 5. How to do algo trading?

    The first thing to do algo trading is to open an account with the broker that offers algo trading. Check if the broker offers a free trial window period for algo trading.

    Steps in algo trading:

    1. Create the algo by defining your entry points, exit points, trading strategy, quantity, profit target, stop-loss.
    2. Backtest the created algos to check its performance.
    3. If the backtest results are not satisfactory, edit or add another strategy and test again.
    4. Once the backtest results are as expected, you can opt for a virtual paper trading experience (if offered by your broker)
    5. Once you are comfortable with the results and performance, deploy the algo in live markets.



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