Algo trading: Trade with multiple stop-losses, strict risk control limits

When selecting an algo, factor in not just the returns but also the costs incurred while trading

The Securities and Exchange Board of India (Sebi) Chairman, Tuhin Kanta Pandey, said recently that the rise of algorithmic trading brings efficiency but also demands robust risk controls and real-time monitoring. Here is a look at the key risks retail investors face in algo trading and how they can manage them.

 

Liquidity and slippage issues 

Liquidity is a major concern. Many stocks and options in India are illiquid, with shallow market depth and wide bid–ask spreads. Orders may not get filled or may execute at worse-than-expected prices, which is called slippage. “Slippage becomes a major issue if liquidity is not