Algorithm trading and its application in stock broking services

Abstract

Purpose: Algorithmic trading provides a more systematic approach to active trading than methods based on trader intuition or instinct. The aim of the study is to examine the level of awareness among the brokers when integrated with technology for the purpose of executing the trades. Design/Methodology: A self-administered and structured 350 questionnaires were designed and circulated to collect the preliminary information from the stock brokers operating in NSE and BSE within the geographical limits of Bangalore district using the Systematic Sampling method to obtain a sample size of 235. Awareness, Automated trading, Elimination of human error, portfolio management, tracking order, order placement were the critical variables observed to validate the hypothesis using Simple Percentage Analysis & Chi-Square Analysis using Statistical Analysis Software (SAS). Findings: It was found that there is robust association between the level of awareness of the mentioned technology in its application by the stock brokers of NSE and BSE operating in Bangalore. Portfolio management and automated trading are the highly associated application of Algorithmic trading among the stock brokerage services. Originality: Algorithmic trading makes use of complex formulas, combined with mathematical models and human oversight, to make decisions to buy or sell financial securities on an exchange. It can be used in a wide variety of situations including order execution, arbitrage, and trend trading strategies. Algorithmic traders often make use of high-frequency trading technology, which can enable a firm to make tens of thousands of trades per second.