Trading with AI bots is increasing in the domestic stock market. According to SEBI's 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 market (futures and options). At the same time, common investors unaware of the power of technology lost Rs 61 thousand crore.
According to the report, the prop trader desk earned about 32 thousand crores and FIIs earned 26,840 crores. Prop traders are financial companies or commercial banks that earn profits by doing direct trading. They do not charge 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 so that trades can be made at the right time. There is no place for human emotions in this. Trading is done on auto mode. But common people trade according to their own understanding, in which there is more scope for mistakes.
How many people earned?
97% of FPI 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 at 1-2% returns: According to Vinod Nair, Research Head, Geojit Financial Services, big institutions like FII and prop traders trade in futures for 1-2% returns. Their orders are in crores, so even 1% return is in lakhs. They do not fall into greed. They have a 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 also do not apply stop loss at the right time. Usually, in an effort to increase returns or reduce losses, they take the risk of extending the deal. 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.
Futures trading of shares increased 40 times in 5 years: Since 2019, the futures trading in the country's domestic market has increased 40 times. In February, the turnover of the F&O segment reached a record level of Rs 502 lakh crore. 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 by imitating the high returns of big institutions in futures.
Graphics Source: VaskarAssets
