Algo trading

On Friday, 20th April 2012, two mysterious events occurred on the National Stock Exchange (NSE). In the morning, Infosys futures crashed over 20% and quickly recovered back to the original level. In the afternoon, just before 2:30pm, Nifty futures crashed 6.7% from the 5,350 level back down to 5,000, and then nearly instantly recovered back to 5200. Both crashes were blamed on algorithmic trading.

Program trading has been blamed for "flash crashes" for nearly 25 years. In October 1987, US markets took a nose dive on a single day and for years, the blame game went on with the primary suspect being program trades. This is understandable. Since a computer can trade with much faster speed than a human, it can set off a spiralling price change by continuously buying or selling with no real control. Why then, should we even allow algorithmic trading?

Hi Terry,
great observation..but i believe these mishaps are due to high frequency trading by big broking houses. I know about the brokerage house responsible for 20th April crash and they were into HFT using their in-house developed application for trading. The entry done by the user was wrong and hence, all the hell let loose. But there are other algo traders as well who do trading based on their jobbing or charting logic. They are not HFT and i believe they may never be a cause for creating a havoc in the market.

Another problem with Algo trading is that, it squeezed out normal retail trader. Right now, for example if you see the trading pattern in infosys 2300 call or 2400put or hdfcbank 520 put, all the order placing is being done with algo, a normal trader is bound to loose money, no more a level playing field for small retailer.

Hey terry,

We have such an advantage over the big traders, it is not even funny... If you think we are at a disadvantage, you are in the wrong business buddy...

Algo trading has advantage in arbitrage and scalping operations because of the speed of identification and execution.....but if trading algorithms are used for swing/ directional trading, we have advantage over computers as we can follow the trends much better and the speed of execution will not be a big edge in that style of trading and timeframe.

In fact in swing/ position trading trader's eye and his experience has definite edge over computers.....

Smart_trade

latest blunder by Algo trading today 20 minutes ago, infy 2400put traded at rs 180 as stock have recovered , earlier it was trading at 130 when stock was down.
HA HA HA

Terry, everyone in the market want's to blame on someone when **** happens.. ... If 1 lot got traded at 180, it must be an amateur who placed a market order in a hurry to cover the put when he saw the market was going up.. He would by now have sent an email to the broker complaining why it got traded at 180 when market was at 150..

Understand this, Most algo's today(80%) work on nifty and even if someone works on stocks it is more cash future arb rather than anything else... The option liquidity is so bad, that no one running an algo would even look at stock options...

An algo is just a program written by a trader.. Instead of looking at the screen calculating, the algo would calculate and execute.. Algo is not evil.. People are... ..