Algo trading for the masses! 5 changes FinTech has brought to stock market

Financial technology, or FinTech, has widely expanded the reach of financial solutions. It is not just a buzzword or a temporary trend that has emerged out of the blue. It is a movement to address the prevailing need gaps in the financial services space. FinTech goes way beyond banks, loans and insurance. It has expanded its influence to other sectors such as stock trading and investment. Today, FinTech has made it easy even for users, who lack the requisite experience, to do stock trading.

For a long time, stock trading has been thought to be a domain of subject experts. In other words, it was an exclusive domain for professionals who understood the complexities of stocks, currencies and other instruments. So, stock trading and stock investment remained largely off-limits for those ‘outside of that bracket’.

The reasons ranged from lack of industry insights to the limited access to advanced platforms. All of this has changed with the advent of FinTech, and the solutions it has unlocked. Now, trading and investments have become as simple as the ‘touch of a button on your phone’ for first-time investors.

Let’s take a look at some of the FinTech solutions that have transformed the Indian stock market in the recent times:-
Mobile Trading Apps
Mobile apps offered by FinTech-enabled brokerages allow clients to trade in shares or currencies and even participate in IPOs. Mobile trading was approved by the Securities and Exchange Board of India (SEBI) in 2010, but back then, it wasn’t as prevalent as it is today. Investors mostly used to trade through brokers, relationship managers, or by using software suites on their desktops.

However, with increased penetration of smartphones and availability of cheaper data plans, trading through mobile apps started becoming popular even in Tier II & III cities. Forward-looking FinTech-powered brokers have also played their part by spreading awareness.

The Use of AI
Some FinTech platforms use artificial intelligence to provide investors with curated portfolios. People who have no clue about investing in stocks are empowered with investor education platforms. These platforms allow people to easily learn about trading and investment through a fun learning approach. On the other hand, AI-driven, rule-based investment engines can analyze more billions of data points instantly before extending a recommendation. To give you a perspective, even if you or your traditional broker analyse one data per second - an impossible feat to pull out by a human being – you would still take more than 31 years to reach their level of precision. And yet, you’d have only analysed a single stock. The machine makes it possible instantly.

Black-box Trading
Among the many popular solutions, one is black-box trading, also known as algo trading. It is basically a set of instructions to trade or ‘a digital version of a trading strategy’. These could be based on time, price, quantity, or a mathematical model. It rules out shortcomings of the manual trading system by keeping human emotions at bay. At the same time, traders can eliminate delays and enter or exit a trade as and when there is a cue. These algos offer opportunities for wealth creation, render markets more liquid, and pave the way for systematic trading. This is what will drive most of stock trading in the future.

Trade without Coding
While algo trading is considered beneficial, it has its own limitations. Anyone who doesn’t know how to write a code is not welcome to the party. However, this gap is dealt with by other Fintech platforms. Such platforms allow you to trade without any coding knowledge. Just by entering the strategy in a simple language, you can ask these platforms to convert the text into codes for trading. This has taken algo trading to the masses. These platforms allow the implementation of sophisticated back-testing, risk management, strategy ranking, indexing, rules-based position sizing, and automated trade execution.

Paper Trading
If you are a beginner at the stock market, should you risk your hard-earned money before you learn the fundamentals? Well, you shouldn't. This is why seasoned traders and investors recommend paper-trading apps and software to beginners, including their apprentices. Earlier, such solutions were only available in the Western markets. However, thanks to the rise of FinTech in India, such paper-trading solutions are now available in the Indian stock market.

These are some of the simple solutions that have simplified the complicated world of trading and investment and taken it to the next level. Digital natives - or millennials, as they are commonly referred to - are inquisitive about investing and keen to invest their money seamlessly, while feeling secure about it. FinTech-driven solutions have opened a host of opportunities to generate profits beyond the world of brokers and market experts.

(Prabhakar Tiwari is Chief Growth Officer at Angel Broking. Views are his own)