InvestorQ : I heard there is a lot of algo trading in markets. Does that impact my execution?
Nisha Chandani made post

I heard there is a lot of algo trading in markets. Does that impact my execution?

Answer
image
Nisha Chandani answered.
3 years ago
Follow

Of course, it does and you will be surprised to know that algo trades and market access makes a big difference to your execution. Unfavourable execution for small investors is nothing new. In his bestseller, “Flash Boys”, Michael Lewis explains how a mix of electronic trading and favourable server location is helping large traders get the execution advantage over small investors. You surely do not have a control over such matters, but you surely have a control over what price you want to buy and what price you want to sell. Also, when you trade aggressively in and out of the market you become a virtual market maker. That is surely not your job, because you are not being paid to be a market maker. In algo trading and market access, large traders and institutions get prices faster than you and that can put your orders in a tight spot.

Let us take the case of trading in options. When you trade options, thinking that brokerages are low, think again. You need to read the fine print. Let us say a broker charges you Rs.100 per lot. On an Infosys option with a lot size of 125 that is 0.80 per side or Rs.1.60 on a round trip. Add taxes and it is Rs.2 per share. When you buy an OTM Infosys call at Rs.10, you incur 20% as execution cost. How's that for your total cost?

6 Views