The Algo Trading makes the Fast and furious Moves in the Market?
Global markets are going through the huge sell-off, no doubts, markets are in the bears’ grip. Indian share market is also feeling the heat. Results, Nifty visits lower circuit on 13th March 2020. It was its 5th lower circuit in the history of Nifty. Due to the lower circuit, trading halted and restarted with a new energy - Fast and Furious Rebound.
Recovery in Dow can be one of the reason behind the surprise rebound in our market. However, the fast bounce back from the Lower Circuit is credited to Algo Trading. Does it so?
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| Algo Trading |
If Algos are the reason behind this fast and furious recapped then they must be behind the one-sided sell-off that we faced as of now in global as well as domestic markets.
The last Lower circuit that we had in our market was in 2008-9. But this lower circuit is totally different from the last one. On a serious note, if you compare, the sell-off and rebounds during the 2008 and 2020, you will able to understand the psychology of the both. In 2008, there was a sell-off but that was not in a one go but in 2020, we witnessed everything finished in one candle.
People were playing one-day cricket match in 2008 but 2020 is the time of T20. The movement seems to be emotionless and indices butchered in a second. Test and One Dayer are over as it was human’s thing, now Algo traders are playing T20 in an emotionless manner.
It is pretty much possible that aglos can impact a big sell-off or buying in a second as they don’t know the emotion but instructions. Once, a level breaks in their instructions, they load their guns and triggers recklessly.
Around 45% of total volume generated in Indian share market is generated by Algos now and if we talk about the USA it reaches to 70%, huge indeed.
Around 45% of total volume generated in Indian share market is generated by Algos now and if we talk about the USA it reaches to 70%, huge indeed.
What is Algo Trading?
Algo trading or Algorithmic trading is a process in which the computer based algorithms are used to execute the trades based on pre-defined instructions. The instructions are programmed into the trading software in forms of algorithms using the variables like time, volume, price and maybe some indicators. In turn, the computer makes the trade according to the instructions given to it. This makes algos trading quite precise, well-executed, well-timed, and free from most possible human errors.
Pros Of Algo Trading
1. High Speed
2. Precise Accuracy
3. Cost-effective
4. Increased Market Volume
5. Less Human Intervention
6. Back Test Possible
7. Automation
8. Rational
These are the few Pros of Algo trading and they are working at such a precise level that no human can match them. The Speed they are taking entry and exit makes the market moves fast and furious. The volume they are generating in a second is speechless.
The Bottom Line
We have witnessed in past that bear market rallies are fast but Algo is making it faster now. So, this can be a boon as well as bane. Bane as they are dumping the market hard. Once the market stabilizes, the volatility decreases and Corona disappears - It can be a boon for us for sure. As we can expect the same faster pumping with increased volume.
What is the reason of such a fast move in the market? Put your thought regarding this.
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