Recently, I was given the opportunity to join a panel of experts on the topic of algo trading in India. It was a topic that has received a lot of attention in the past few years. Coming from a prop trading background, it seemed appropriate for us to chime in. When we moved to India in 2009, we started off as prop traders to learn about the exchanges. It allowed us to understand the landscape and of course, try trading strategies. Our knowledge and experience in the past 4 years helped us start our real goal of starting a retail brokerage business. The idea was to help the investor gain returns from the market and the day trader trade with great pricing. During the conference, the different participants spoke about many things ranging from risk management to technology. I will touch up on a few things that are relevant to today's trader sitting at home and how things look from the brokers' perspective.
Risk Management
By far and wide, this was the most relevant topic of the day. Any type of trading comes with risk, and it is definitely heightened when you involve a computer to take part in your decision making. It was widely agreed that risk management policies across the board, from the trading member to the clearing member and the exchange can be improved. We all witnessed what happened on Oct 5, when a dealer from Emkay Global pushed the Nifty down by 10% due to erroneous trading. There was no algo trading involved and it fell purely on the hands of the risk management team. This hurt everyone -- long-term investors saw their portfolio value vanish in seconds and day traders had much of their stop-loss orders triggered. Emkay needed to have strict risk management policies in place to prevent individual dealers from bringing down the index. Technology pushing for better risk management can solve this and improve Indian markets.
Transparency
We are witnessing volume declines on the cash segment which hurts investor confidence. Brokers and exchanges should be more proactive in publishing their policies and terms and conditions. At Upstox, we believe that one of the first steps is to be crystal clear on what we offer and what we don't offer. To do this, we launched an interactive help desk which provides prospective and existing customers a searchable database with all their common questions. Additionally, we have created a Profit & Loss calculator so traders can see their charges broken down bit by bit. Indian markets will witness more volume as we increase retail investor confidence.
Conclusion
Whether it's pro trading or retail trading, technology is the way to move forward. Whether it's the broker improving his risk management or the exchange improving theirs, technology is the solution. Both brokers and exchanges have to work on investing more money in technology to boost investor confidence and trading volumes in India. That is the best step forward to improve the Indian markets.
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