Too Fast to Fail?: The Perils of Algorithmic Trading in the Indian Markets

By Kavaljit Singh | Briefing Paper # 16 | June 2014

Since 2011, algo trading has been swiftly gaining ground in the Indian stock and commodity markets. Algorithmic trading is all the rage in India now but the key questions that are rarely asked: To what extent algo trading be allowed in the Indian equity and commodity futures markets? Do we have a system of checks and balances in place to control dysfunctional algorithms and minimise the possibilities of any flash crash?
Algorithmic trading is based on a technology-driven pre-programmed mathematical model that allows execution of orders at a very high speed (without human intervention) to benefit from the smallest movement in the prices of commodities, stocks and currencies. The buy or sell orders are executed by computers not in seconds, but in microseconds.