MUMBAI: The high frequency trades or algorithmic trades, which are based on complex mathematical models, have resulted in over 40,000-50,000 people losing their jobs in the domestic equity markets since its introduction in 2009.Unlike the normal traditional system where trades are executed manually through the stock-broker’s system, high frequency trades are executed by computers without any human intervention and are multiple times faster than the manual trades.
In a high frequency trade, complex mathematical models or algorithms are created to track the market movement and trades are executed in a millisecond. They take advantage of the price discrepancies in the markets that exist only for a fraction of a second.“It is very difficult to beat the high frequency trades by manual traders as they are executed in a few milli-seconds. About 40,000-50,000 people have been rendered jobless in the equity markets as computers have taken over their jobs.
It’s mostly the arbitrageurs, who have lost their jobs,” said Rakesh Somani, former president, Association of National Exchanges Members of India (ANEMI) and director, Eureka Shares and Stock Broking.According to him, the high frequency trades now account for almost 50 per cent of the overall traded volumes on the stock exchanges. “Around 80 per cent of the trading volumes are concentrated in the hands of leading 20-25 stock market brokers. All of them have access to the co-location facility offered by the stock exchanges, which help in faster execution of trades,” he added.
The co-location facility allows a stock broking firm to host its server close to the stock exchange’s trading platform that enables faster transmission of trade orders.“The high frequency trades have gained momentum in the Indian markets. The manual traders have lost their edge to computers as the latter has the ability to spot and take advantage of the price differences or opportunity that exists for only a fraction of a second. For instance, a security ‘B’ is trading at Rs910 in bombay stock exchange and the same is available for Rs911 in NSE, a trader can make money by buying that security in BSE and selling it in NSE. Computers are capable of doing that in milli-seconds,” observed market expert Ambareesh Baliga.
