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What is Algo Trading and How it works

What is Algo Trading and How it works

The stock market is one of the financial services that has attracted many investors. Though Algo Trading was introduced less than a decade in the Indian stock market by SEBI, there are still many old traders who found the system complex. However, leveraging advanced technology, Algo Trading has made the trading experience more powerful.

What is Algo Trading?

Algorithmic Trading, better known as Algo Trading, is a trading method in the stock market carried out by algorithm-based software, which is inbuilt AI technology with pre-defined processes to calculate the trading and predict the future prices. In addition, Algo Trading software eliminates the chances of human error as it is built by machine learning to have a 99% error-free formula.

The algorithmic method is widely used in FinTech industries, mutual funds, and many other financial investments sites to predict future rates and study market behavior. However, Algo Trading is more beneficial for those who trade in high volumes and constantly stream the stock market data in real-time.

How does Algo Trading works?

There are three fundamental ways to ensure the trader is reaping the benefits of the Algo Trading stock broker app:

  • Trend Algorithm: Trend algorithm refers to strategies based on the volume, price, and behavior of the stock. The trend algorithm uses the practice of buying the stock when it reaches the lowest point and notify the sell signal when the price comes to a desirable price.

    It is almost impossible for a trader to keep watch the multiple stocks and investments and act at the right time to buy or sell. Thus, the trend algorithm-based stock broker app uses numerous strategies to ensure constantly analyzing the market structure and keep the trader informed on a real-time basis.

  • Stop Loss Algorithm: It is always being said that investing in the market is subject to risk. With hundreds of stock and investment options in the market, managing a huge portfolio and balancing profile and loss is difficult. Therefore, with the stop-loss algorithm, the trader can manage the portfolio by stoping the losses.

    For example, if the stock price is INR 5000 and the trader's stop-loss option is 4998. Then, as the stock price rises to 5005, the stop loss automatically changes to 5003. Thus, the method keep move further, and the predefined stop loss algorithm automatically manages the risk.

  • Size of the Stock Algorithm: The primary difference between a regular and a good trader is managing the portfolio under heavy market fluctuation situations. The Algo Trading makes everything easy as the predefined commands act the machine learning has been set. With the size of the stock algorithm, the trader can prefix the value of the stock he wants to buy.

    For instance, if the trader prefixes the value INR 50,000 for some stocks, the system app will automatically purchase the stocks as per the command set. If stock A price is INR 100, the system will buy 500 shares. If the stock A price rises to INR 500, the system will buy 100 shares.

    The trader can set different amounts for different stocks and manage them equally without worrying about wrong calculations.

What are the Algo Trading benefits?

Algo Trading practices a particular set of mathematical instructions installed in the software. Once the market rate matches the instructions, the Algo Trading software instructs the trader to buy or sell the stocks. Thus, saving a lot of time from scanning the market individually.

Algo Trading software benefits:
  • Reduced the trading errors caused by humans as machines are systematic, and their behavior can be modeled, unlike humans; thus, it makes the trading predictable.
  • The order placement of the trade is accurate and more chances of execution at a higher value.
  • Minimal transaction cost and quick result.
  • The Algo Trading software helps to stop losses on the trader's behalf by applying stop-limit notification. The market is unpredictable, and it is almost impossible to manage a vast portfolio, look after each stock at one go and stop losses.
  • Algo Trading helps the trader maximize exposure to numerous other opportunities and investments in the market to maximize their profit.

Who should practice Algo Trading?

  • High volume traders: the traders who trade in heavy volume of stocks every day, such as buying 100–200 stocks of multiple companies and trade-in currencies.
  • Mid-term or long-term investors: individuals who are investing more in mutual funds, pension funds, insurance, and other financial products.
  • Short-term traders: the traders who are into short-term profit, buying stocks when the prices are low and selling them when the market is up.
Special Offer: Brokerage free equity delivery trading + Flat ₹20 Intra-day and F&O trades. Get the offer

Top 3 stock broking companies in India offering API — Automated Algo Trading Software:

  1. Zerodha

    Zerodha offers excellent API for beginners, which helps them to practice trading easily. However, the APIs aren't fully automated end-to-end; certain features like the stop-loss limit are available in the app.

    Expert traders use the fully automated trading on Zerodha by installing their party apps like Tradetron and ask for the exchange permission to utilize the other Algo Trading features.

    Zerodha offers INR 20 or 0.03% (whichever is lower) per order executed.

  2. Angel Broking

    Angel Broking Smart API allows the trader to do Algo Trading. It uses third-party software like Streak and Fox Trade to trade on all exchanges and segments, check the company's data, manage the portfolio, and check stock prices on a real-time basis.

    Angel Broking offers INR 20 flat fees per order executed

  3. Motilal Oswal

    Motilal Oswal is a full-service stockbroker in India, and it is one of the oldest firms in India. Motilal Oswal uses a multi-strategy API — Tradetron that allows the traders to use the trading strategy developed by the in-house trade experts to give the best seamless, and fastest service to their users. In addition, there are 100+ keywords installed and ready to use to serve various types of traders.

    Motilal Oswal offers 0.05% fees (both sides) per order executed.

    Other stockbrokers firms apps offer API — SAS Online, SMC Global, GCL Securities, Anand Rathi, Finvasia, Alice Blue, and Indira Securities.

Special Offer: Brokerage free equity delivery trading + Flat ₹20 Intra-day and F&O trades. Get the offer


In the past few decades, India has seen tremendous growth in stock market traders. However, with a heavy volume trading each day, it is beyond human capacity to check prices and manage a diverse portfolio while balancing profit and loss. Algo Trading is developed to manage a high volume of trading seamlessly, assisting the traders in managing their portfolios.

Trading and investment in marker are subject to risk; therefore, it is advisable to talk with your financial advisor before investing a large amount in it.

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