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The Securities and Exchange Board of India (Sebi) on Friday cautioned investors against dealing with unregulated algorithmic trading platforms and also asked them to be wary of sharing sensitive personal information on such platforms.

“It has come to the notice of the Sebi that many unregulated platforms are offering investors algorithmic trading services/facilities to automate their trades. Strategies are being marketed with “claims" of huge return on investment along with “ratings" assigned to the strategies and claims that similar returns would be earned in the future. Investors are cautioned that these platforms are unregulated and thus there is no investor grievance redressal mechanism covering their activities," the regulator said.

Essentially, algorithmic trading is a process for executing orders utilizing automated and pre-programmed trading instructions to account for variables such as price, timing and volume. An algorithm is a set of directions for solving a problem. Computer algorithms send small portions of the full order to the market over time. Algo trading is a technology platform that allows institutional investors to make trades rapidly, with the aim of gaining a nanosecond advantage.

In December, the market regulator floated a discussion paper on algorithmic trading by retail investors to limit the emergence of unregulated algorithms and their use by retail investors. This came in the wake of a lot of retail clients losing a lot money because of the false promises made by vendors.

“Stock brokers need to take approval of all algos from the exchange. Each algo strategy, whether used by a broker or a client, has to be approved by exchange," said the market regulator.

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