Technology should expand the scope of human skills. There are things that you can do yourself using your skills. You can use technology to support your skills and create something even more potent than before. The evolution of the stock market is remarkable. There was a time in India when it was a closed-member group. From then on, it has evolved into a vibrant trading system with shares worth $5.5 trillion traded daily.
From days when physical paper and settlement systems ran into weeks or months, India can boast of being among the most efficient trading systems in the world. The settlement of trades determines the efficiency of such a system. The buyer should get the shares or securities they seek, and the seller should get the money at a designated time.
Investing in the stock market is not for the faint-hearted. While we have a stock market trading system that guarantees all trades, growing your money and protecting it from losses and volatility is not guaranteed. For that, you need knowledge or expert support. Knowledge requires you to make all the effort to understand the way prices of securities move. You must know the right time to buy or sell a security.
Expert support can come to you through people who are registered, financial advisors or research analysts. They track fundamental and technical factors that drive shares, bonds or other securities like derivatives or commodities futures. If you do not want to use their advice and trade or invest, you can always rely on mutual funds to help you. Fund managers at mutual funds are equipped to make all the effort to identify the right time to buy or sell securities. You can choose your sectors or invest in a diversified fund to benefit from their expertise.
There are portfolio management services or wealth managers for the more discerning investors. They give personalised investment advice and manage their portfolios for a fee.
Technology is rapidly changing the way stock market trading takes place. A lot of high-networth individuals and institutional investors use algorithm-based trading systems.They feed the relevant data and create trading and investment strategies based on the target prices of securities. Those programmes are fed into the stock market system.
An Algo trading platform is facilitated by application programming interfaces or APIs that set rules and protocols, allowing different software applications to communicate and exchange data.
The Securities and Exchange Board of India (Sebi), the stock market regulator, announced a consulting paper proposing to extend technology’s benefit to individual investors.
If you are keen to explore such a facility, there is a minimum threshold for your investment. At the same time, you must talk to your financial advisor stockbroker before enabling such a mechanism. Your trading and investment strategy must be based on your ability to take risks and financial goals.
When to use technology
You can use the help of algorithms to buy or sell equity shares, exchange-traded funds or bonds. For those familiar with finance, you could explore the technology option immediately if you are eligible. Using technology to execute trades makes more sense as it eliminates instances of human bias and behaviour.
The software executes transactions when prices are according to parameters fed and do not procrastinate like humans. For example, if you create a strategy to sell after your investment doubles, your algorithm will ensure you sell the security when the target is met.
However, if you manage it yourself, you may worry about the future profit you could lose if the stock continues to rally and not sell. With volatility in the stock market, you could lose an opportunity to make money if the security price falls.
Rajas Kelkar
(The author is editor-in-chief at www.moneyminute.in)