In India, approximately one-third of all trades placed online are through High-Frequency Trading (HFT). These trades are executed using algorithms written by programmers and implemented through algorithmic trading.

A brief history of algorithmic trading (HFT) in India:

In late 2008, SEBI allowed for "Direct Market Access" (DMA) to be opened up in India, granting high-frequency trading access to all the leading exchanges in the country.

HFT and algorithmic trading are often considered synonymous. The advantage of an HFT trade lies in its algorithmic coding, allowing for automatic signal generation for buys and sells. Once a buy signal is generated, the trade is executed within fractions of a second. This rapid execution provides a significant advantage to algorithmic traders, as compared to screen-based traders who take seconds to react to price changes and place a trade.

How are algorithms designed?

Algorithmic traders typically use historical data to design and develop their algorithms. They employ a process called backtesting to test the profitability of the strategy on historical data. Algorithms are developed by identifying patterns in the market, based on the premise that a pattern from the past will continue in the future.

Risk management is crucial in algorithmic trading. To gain approval from the markets, exchanges require firms to undergo stringent tests if they intend to trade through HFT. These tests include assessing the number of orders placed per second, the maximum order value, and the maximum traded quantity during a particular trading day.

There is substantial scrutiny surrounding algorithmic trading, not only in India but globally across major stock exchanges. Nevertheless, it's safe to say that HFT is a persistent and integral part of the Indian trading landscape.