Algo Trading in India: Meaning, Strategies and SEBI Regulations

Published on December 24, 2025 | 4 min read

Algo trading, or algorithmic trading, is a way of trading which involves using computer programs with predefined rules. An algorithm is a set of rules a computer follows to solve a given task. Trading involves the exchange of shares or any asset. When the two terms “Algo” and “Trading” come together, it can be referred to as algo trading. This type of trading become popular due to its high-speed execution without human emotions.

Algo trading in India is legal, now regulated by the Securities Exchange Board of India (SEBI), requiring all market participants, from stock brokers to investors must follow SEBI guidelines. It ensures fair play and transparency in the markets.

What is Algo Trading?

Algorithmic trading, or algo trading, simply means writing a code that tells the computer when to buy or sell shares electronically. The decisions are based on a predefined set of rules such as value, time, volume and many other mathematical or statistical models.

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When certain rules or criteria are met, computers execute the trades automatically without any human intervention.

For example, you gave a simple instruction to a system. If the share price of ABC company crosses the 20-day exponential moving average (EMA) from below, then execute a buy trade, else not. So, in the live market, when the share price of ABC company crosses the 20-day EMA, the computer will take a buy trade. It is important to set rules for exiting the trade to close the position.

Algo trading strategies are predefined rules set by a trader to automate the process of buying and selling shares or derivative contracts. These strategies make use of mathematical models and programming logic to generate profits.

Trend Following Strategy

This strategy is based on various indicators such as Moving average, supertrend etc. A trader creates a logic in the computer for when to buy or sell. When the moving average or super-trend displays a buy/sell signal, the trade is executed.

Some other popular uses for identifying the trend are the EMA, MACD (Moving average convergence divergence), and ADX (Average directional index). This strategy works well in trending markets and can capture big price moves.

Arbitrage Strategy

It involves taking advantage of tiny price gaps between two exchanges or markets of the same asset. This happens due to demand and supply, but it exists for a very short period of time. Algo is used to identify such opportunities and capitalise it for generating profits.

Scalping Strategy

It involves taking multiple trades in a day and taking advantage of small price movements. Scalping is fast, so timing is important. Algos are used to capitalise on the tiny changes in prices without any human emotions.

Mean Reversion

It is based on the idea that asset prices can revert to their historical average over the period of time. These strategies search for stocks which have deviated from their mean, and chances are high that prices will return to their mean. Mean reversion can be identified by using various technical indicators such as Bollinger bands, averages, RSI, etc.

Option Strategies

Option strategies like straddle, strangle, spreads, etc., can be easily done using algos. These strategies are based on option premium, open interest, VIX, option greeks, IV, etc.

SEBI Regulations on Algo Trading In India

In order to protect market integrity and safeguard the retail investors, SEBI has proposed new regulations on algorithmic trading in India. The new regulations aim to bring more transparency and investor security as it is applicable to stock exchanges, stock brokers and algorithm developers. These new regulations came into effect on August 1, 2025.

Mandatory Exchange Approval: The broker has to verify that all the deployed algorithmic strategies are approved by exchanges. It ensures that only certified strategies work in markets, which reduces the chances of price manipulation.
Unique Algo ID: It states that each algorithm should be linked with a unique algo ID, which connects to the specific algo strategy. Unique ID allows exchange to track separate algorithms, monitor performance and identify red flags.
White Box vs Black Box Algos: White box algorithms are execution algos, where logic is transparent, and users replicate it. Whereas, in a black box, logic is not disclosed to maintain privacy.

However, these strategy providers must register as research analysts with SEBI and maintain detailed reports for the logic used in their strategies.

Algo Provider Registration: Registration is mandatory for all algo providers, as it ensures companies do not provide misleading algo solutions to retailers.
Strategy deployment only via Broker Infrastructure: With these regulations, SEBI had banned all open APIs. Now, third-party providers cannot connect to broker platforms to execute trades. Only algorithms deployed via brokers platform will be permitted.
Stock Brokers' Responsibility:

The brokers can approve or register client strategies.
Track the API usage
Maintain complete audit trails
Brokers should address issues or complaints related to algorithms.

Risk Control: All brokers must enforce risk control methods such as a kill switch, 2FA, order limits per second, and static whitelisted IP requirements for API access.
Disclosure: Brokers should disclose the APIs and third-party integrations to the clients. Also, brokers and algo providers must disclose all charges, such as subscription fees and costs linked with algo trades.

Algo trading offered fast speed, accuracy and efficiency in the financial markets. It allows market participants to automate their strategies and trade without emotions. SEBI’s regulations give confidence to the retailers and all stakeholders for ensuring fair trade practices.

About Author

Subhasish Mandal

Sub-Editor

finance professional with strong expertise in stock market and personal finance writing, he excels at breaking down complex financial concepts into simple, actionable insights. Holding a Master’s degree in Commerce, he combines academic depth with practical knowledge of technical analysis and derivatives.