The impending launch of a computer-aided programme for currency trading promises to widen the universe of retail investors, as it delegates key decisions to algorithm-based software programmes instead of human intervention–read traders.
Since currency futures were introduced in August 2008, retail investors–bar some high networth individuals familiar with the workings of the market–have largely stayed away because of the complexity of the business and their lack of experience and knowledge.
Now, Alpari Forex (India) Pvt. Ltd, the Indian arm of the UK-based, retail-focused currency brokerage, is looking to introduce in a few months’ time computer-aided trading platforms for retail customers that will allow them to leave trading decisions to programmes based on pre-determined criteria.
“With this kind of trading option, retail clients can enter into the market without any money manager; you don’t need to be an expert to participate in the currency market,” said Pramit Brahmbhatt, chief executive of Alpari India.
Such programmes, known as algorithmic trading, are a popular option in more mature markets for equities and currencies, and are used by both retail investors and full-time traders to take advantage of the arbitrage opportunities, or price differences, between multiple exchanges.
“Algorithm looks at more factors than a human can judge. It is a non-emotional way of trading in the market,” said R. Sridhar, head of treasury at Axis Bank Ltd.
Typically, traders track multiple exchange, buying where prices are low and selling where they are high.
The algorithmic trading model enables this to be done at vastly higher speeds, tracking thousands of asset classes at the same time. The speed, in particular, makes such trading attractive in global currency markets because of their inter-connectedness.
Such trading, particularly in equities, has also been questioned in some Western economies, where critics say the speed and size of such orders give large trading firms an unfair, split-second advantage over smaller companies and retail investors.
Currently, the daily trading volume in the domestic over-the counter (OTC) currency market is about $48 billion, and about Rs30,000 crore in the futures market. About 10-15% of dealers in currency markets are retail speculators.
But it might be too early to expect an Indian version of the Japanese housewives who entered the currency trading markets in droves in the nineties, to exploit time and interest rate differences between Japan and the US.
With restrictions on the movement of the rupee, retail investors might take a while entering the market.
Source:http://www.istockanalyst.com/article/viewiStockNews/articleid/4226599
