Algorithmic Trading
The use of computer programs to generate and manage orders according to predefined rules, without manual intervention on each order.
How it is identified
Test: order generation, timing or routing is determined by a program rather than by a human decision on each individual order
Unit
qualitative
In depth
Most algorithmic trading is unglamorous execution work — slicing a large parent order into children to minimise impact — rather than the prediction engines the term suggests. In India, algorithms used by brokers require exchange approval, and SEBI has repeatedly tightened rules on retail algorithm marketing after strategies were sold with backtested returns that did not survive real costs. Automation removes emotional error and adds operational risk: a faulty algorithm makes the same mistake thousands of times before anyone notices. Speed is a separate question from automation, and only a small subset of algorithmic trading is high-frequency.
Worked example
A parent order for 5,00,000 shares is worked as VWAP children over four hours. The algorithm decides slice size and timing; a human decided only the total, the venue and the urgency setting.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Algorithmic Trading” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.