Thos who want to lose money will do so from the cheaper front end platforms. Besides as you have noted even without the APIs, hacks are possible to automate using current front end platforms. So exorbitant pricing of APIs doesn’t help the retail customer in any way.
Automation helps to save time, preserve health and can aid in bringing discipline and consistency in a strategy execution. A commercial platform offering auto trading platforms could be regulated. But barriers shouldn’t be put on individual consumption and use of APIs via RMS of the broker. There is no extra risk here to the system or individual user relative to trading from the front end trading platforms.
I would also agree, maybe reimburse back the money to people using api who are generating x amount of brokerage. Its overhead for people with multiple accounts etc. To much of brokerage is already paid by active traders even SEBI head says so.
Today there are many people out there acting like quasi-advisors without any regulatory approvals, providing ready-made algos, sometimes making it seem like it is a guaranteed way to make money. The issue with algos as compared to manual trading is that orders can get placed without the user being aware and the account could lose money. So that is the big difference as compared to traders losing money manually, atleast they are aware of the orders that are placed.
The risk with algos is also that there could be technical glitches as well, imagine a trader running an algo and not knowing what to do when there is a glitch. It is like being a pilot of a plane without knowing how to fly.
It is just a matter of time before some regulation comes through which makes it impossible for any broker to offer APIs given everything that is happening in the industry today of many unregulated quasi-advisors selling readymade algos. All it needs is one large incident when a bunch of customers of such an algo platform reach to SEBI crying foul.
Unless an individual shares his API credentials how can some platform place orders in his account ? If he has done so then how can he say that he was not aware ?
An individual trader who doesn’t know to code is not going to use APIs to trade. So if there is a glitch he would know because he made the plane that he is flying. Ofcourse commercial platforms enabling people to just copy and paste API credentials to autotrade could and should be regulated.
The chance of a big money HFT system in collocated exchange space to go crazy and crash the market is way more than a small time player. So am hoping SEBI to be more supportive of a retail guy’s aspiration to use APIs for his personal but not commercial use.
A careless naive coder can wreck his account easily. Also, when glitches happen, it is best to know what is what and how things work, else things can go out of hand fast. This I agree.
But such people will find their poison anyway.
@nithin
Maybe you can offer a sandbox environment (will help all api users) for testing if that is your real concern. But no-one seems to be bothered about that, including the staff at kite.trade.
What Sujith has mentioned here is right. We have had a huge dependency on our Execution management system (EMS) on a third-party vendor, like almost all brokers in the country. So our inability to offer the sandbox had more to do with the vendor not having an offering. The good news is that we are currently in the testing phase of our in-house EMS, and we should be able to offer this before the end of this year.
Back in 2007, interactive brokers had and still has a paper trading interface to test out their API and customer strategies using the same. This is what I used to test out my first automated strategy using Amibroker.
More exciting things are happening with a broker on the paper trading front in 2023 but lets not post it here…
When an entity does something wrong, SEBI bans it from the market and does not stop the market. Why is it that when it comes to api, talk is always about banning api itself.
Why cant SEBI make it mandatory for such platforms to have some sort of existing advisory/pms certification and/or something new. This way they get regulated as needed and people without certification can be banned/penalized on detection.
If this is not possible then the platforms can be banned too ( hope not , it can be a legitimate service too), At the least individual retail should not be denied. There is no exta risk from that.
Problems happen regularly without api too. Just look at Finvasia recently.
Even before api, we had many hacky ways of automation. I used to do that via auto hotkey over nest with decent speed. And we did have service providers even then. So banning apis will not prevent automation ( but might make it harder and more error prone).
I think best way to deal with bad actors is to catch them and penalize in proportion to crime. We seem to be always lacking here. There are lots of pump and dump schemes even in investment world. Most newbies lose money there and SEBI does not do much. I have seen promoters of companies running away with money after slump sale of assets and SEBI did nothing.
Despite legitimate concerns around algo trading; do you also think that a large number of modern retail investor could benefit from better tooling to be able to make better portfolio decisions ? (I am mostly talking about long term investors and not traders).
I can think of a few incremental steps to consider, to guard against the downside of algo trading without doing away with the upside of api’s on the platform?
Allow access to read only api’s.
rate limit core trading api’s that prevent algo traders from operating reliably.
[stretch] mandate a manual approval for the placement of any trades; i.e. create / suggest trades via an api but can’t place them without a review.
Would love to know your thoughts (and the communities) on this. Hope you get better soon! Thank you.
