Now, algorithm-based trading apps for retail investors

Sequel to rising interest among retail, HNI participants in derivatives; trading houses develop these in-house

High-speed sophisticated trade applications are being developed for retail clients dabbling in stock and index futures.

Recently, Kotak Securities tied up with data analytics firm Heckyl Technologies for the development of applications for the retail (individual) and high net worth investor (HNI) segments. These apps provide for information about global markets, along with recommendations and research on trading opportunities.

Motilal Oswal Securities has developed an in-house research algorithm (algo), launched some months earlier and already seeing 2,000-3,000 clients a month. Analysts said the demand for research algos was a result of the rising interest among retail and HNI participants in the derivatives segment.

RESEARCH ALGOS FOR RETAIL

• Research algos are trading apps which generate strategies for retail investors
• Strategies generated are only for the equity futures and options segment

However, algo-based trades, about 60 per cent of total trade, have always been the domain of sophisticated institutional traders. HNIs are present in the segment but most of them opt for fully-automated algos, similar to the ones used by institutions.

Algo-based trading is are automated ones, using computer-generated formulae and not requiring human intervention to see these through. However, the regulator does not allow automated trades for retail participants. “Brokers cannot place orders for retail clients without their permission. That is where this comes in. It can generate trading strategies in a time-efficient manner and all that clients need to do is accept or reject the category by clicking a button,” said Bhavin Desai, assistant vice-president at Motilal Oswal Securities.

The derivatives segment has been a major draw for investors in both the retail and HNI categories. Unlike the delivery-trade segment, trading decisions need to be faster and much more accurate to avoid losses in the equity futures & options segment. The research algos come up with various strategies, based on the trading and price pattern of a stock.

“Today’s investors and traders sift through a lot of data before executing their orders. Hence, we are investing in this technology, so that our clients can make trading decisions confidently, with some robust market data,” said Trivikram Kamath, executive vice-president and head of operations for finance and technology at Kotak Securities.

While the algo apps differ from each other, they are uniform in providing various intra-day strategies, based on the trading and price patterns of the stock. These apps also provide a client with information and in-depth analysis of the change in price and open interest of the stock chosen by the client. Details about fresh positions, squared-off positions and total number of traded contracts are offered to clients. A final decision to accept or reject the trade is left to the individual investor.

Algo apps also reduce the information gap between retail and institutional investors, providing them with previously unavailable access. At present, investors call brokers and place orders, causing significant delay in the exercise of the strategy. The regulator has been concerned about risks in this segment.

“These apps have a very simple user interface, where all the data and market information is available in one place. The app provides actionable data on a real-time basis, so that investors can make an informed choice,” said Mukund Mudras, chief executive at Heckyl, which provides similar technology to brokerages such as IIFL, Edelweiss and Religare.

Recently, the Securities and Exchange Board of India revised upwards the minimum contract size for equity derivatives to Rs 5 lakh from the earlier Rs 2 lakh. The move was aimed at reducing retail participation in the segment.