Algo Trading for Stocks - Role & Benefits in the Stock Market

12 Mar. 2025

Algo Trading for Stocks – Role & Benefits in the Stock Market

Over time, Indian stock markets have witnessed significant changes, and technology often shines through with various innovations that work towards making trading much easier. One of the most innovative and modern developments in this regard is algorithmic, or algo, trading, as it is widely known. Although this practice has been prevalent in the developed world as far back as the early 1990s, its rise in India has been causing noise in the last decade with advancements in technology, other regulatory support, heightened investor awareness, and market maturity.

In this blog post, we will explain algo trading, its pros and cons, and what Combiz Services Pvt Ltd is doing to make this trading approach a success in India.

What is Algo Trading?

Algorithmic trading is described as stock trading where computer algorithms execute. These algorithms are programmed with a pre-defined logical sequence of rules taking into consideration several factors—price, volume, timing, and market trends—to make trading decisions in real-time. The major importance of algo trading is to perform trading at a faster pace than manual trades, reduce human errors, and take maximum market opportunities that could be missed by human traders.

For example, a simple algorithm might be programmed to buy stocks when prices drop to a specific level and sell when they rise above a certain threshold. More complicated algorithms tend to be equipped with machine learning and stochastic models to analyze real-time data and optimize their trading strategies.

How Algo Trading Works in the Stock Market

Algo trading follows a structured approach where strategies are programmed into systems to make trading decisions based on price movements, volume, and other market indicators. Such algorithms scan the market for any available opportunity to trade; they execute orders at optimum prices. The speed and accuracy with which algo trading operates compared to manual trading constitute a considerable advantage that enables a trader to effect thousands of trade operations in seconds.

The Key Role of Algo Trading in the Stock Market

1. Market Efficiency Enhancement

Algorithmic trading helps to reduce price imperfections and improve liquidity in financial markets. Since algorithms can absorb huge amounts of data at once, they help balance supply and demand through the execution of trades at the best possible prices.

2. Decrease in Emotion Bias

With computers making trading decisions entirely dependent on facts and figures, those trades cannot be exposed to emotional biases typically associated with human trading. Human traders decide to buy or sell based on sometimes irrational factors such as fear or greed, but a pre-established trading algorithm ensures that no emotional factors will affect the decision on whether to trade.

3. Fast execution of trades

Algo trading would allow an average person to make hundreds of trades in milliseconds—something a human trader would never be able to pull off. This speedy execution is necessary for arbitrage, scalping, and high-frequency trading (HFT) strategies, all of which require immediate reaction to market movements.

4. Risk Management and Execution of Strategy

There will be a systematic way of trading where an exposed potential loss has been minimized with a predefined risk parameter. Thus, the algo trade allows traders to implement strategies automatically such as stop-loss, take-profit, and most importantly, hedge, reducing the potential loss-to-market exposure.

Read Also: Copy Trading in Stock Market

Types of Algo Trading Strategies Used in Stock Markets

1. Trend Following Strategies

The algorithms look into all the past prices to find and apply the following trends indicative of overall market behavior. They discover bullish and bearish trends to trade at those levels where they can capitalize on price movements that get held for a longer duration.

2. Arbitrage Strategies

These types of strategies tend to generate profits without any risks by trading price differences across various markets. Statistical arbitrage, index arbitrage, and inter-exchange arbitrage are the gimmicks used among algo traders by exploiting price discrepancies.

3. Market Making Strategies

In this technique, algo traders just have to place bets either by buying or selling continuously to capture bid-ask spreads while providing liquidity. Most importantly, institutional traders and market makers do this stuff to ensure that the markets are functioning smoothly.

4. Mean Reversion Strategies

Algorithms can identify assets that move away from their historical average prices and trade accordingly. This strategy is based on the belief that prices will revert to their mean over time within the obviously available trading opportunities.

AI BOT Features:

AI BOT-Algo Trading and Copy Trading is a web-based platform
AI BOT supports multiple broker
AI BOT allows cross-broker copy-trading
AI BOT supports algo trading from various trading platforms eg. Trading View, MT4/5, Python, Excel, Amibroker, Ninja Trader, etc.
AI BOT supports direct trading in multiple accounts in one click
AI BOT has basket order and one-click trade features
AI BOT can place a trade in thousands of accounts in one click with mili-seconds latency.
AI BOT your trades can copied even when you are not suitable for part-time traders as well.

The Role of Combiz Services Pvt Ltd in Algo Trading

Combiz Services Pvt Ltd is a prominent algo trading solutions provider. It supplies stock traders with sophisticated trading applications, API integration, and automation services. Their solutions are designed to enable the stock traders to act precisely and effectively on the stock market.

The Features of Combiz Algo Trading Solutions

Seamless API integration with all major brokers: Traders can link their trading accounts with minimum effort.
Customizable trading strategies: Users can create and deploy their own algorithmic trading strategies.
Real-time data analytics and backtesting: Making sure that traders can make data-driven decisions with insights on past performance.

Why Combiz Services Pvt Ltd?

With cutting-edge technology and an easy-to-use interface, Combiz Services Pvt Ltd enables traders to maximize the efficiencies in stock market trading. The company provides customized solutions that serve individual traders and large financial institutions.

The Future of Algo Trading in the Stock Market

As technology keeps advancing, algo trading is expected to take hold of stock markets with AI-driven strategy and improved automation. The synergizing of machine learning and artificial intelligence in predictive analytics will, by all means, give an edge to traders in financial markets.

Conclusion

Algo trading has brought an entirely new way of conducting stock market trading by way of speed, accuracy, and efficiency. With Combiz Services Pvt Ltd, traders can deploy world-class algo trading solutions that help achieve better performance in the market. With the evolution of the financial landscape, algorithmic trading is going to be very much essential for success on the stock market.