Question

Reserve Bank of India cautions against surge in algo trading.
What does algo trading imply?

• A. The use of electronic platform for entering trading orders with a computer programme
• B. The use of algorithm in trading
• C. Trading by two exchanges simultaneously
• D. The use of electronic platform for entering trading orders with a computer programme as well as the use of algorithm in trading
• E. The use of electronic platform for entering trading orders with a computer programme and also trading by two exchanges simultaneously

Answer 1

The correct option is A The use of electronic platform for entering trading orders with a computer programme

The Financial Stability Report, released by the Reserve Bank, in June 2015, warned against the rising popularity of superfast algorithm trading, saying its complex coding and ultra – low latency due to its advanced communication platforms increase risks of erroneous trades and manipulation in stock markets.
Algorithm (algo) trading refers to the use of electronic platforms for entering trading orders with a computer programme (algorithm) determining the decisions on aspects such as the timing, price, or quantity of the order or in many cases initiating the order without human intervention.
Algo trading is subject to SEBI regulation issued in March 2012 and May 2013.