This Freak trading issue is becoming a real trouble for all Traders who trade with market orders. We are experiencing this issue almost every day now from last couple of weeks. In this article we shall only focus from Algo trading perspective, how can this be addressed, which tools and technique shall help Traders to save them.
If you have not read the content of Zerodha, then please read here. They have explained not only the issue but the resolution as well.
The Problem:
Problem is while executing a market order for Algo trading, if the price is way above the actual price range, then the order is now getting executed with that abnormally higher price, as on August 16th 2021, NSE completely removed execution ranges. To set the context right, let me give you an example from the below image, where you can see on 7th September BANKNIFTY 36000 PE, opened at Rs. 85 and went up to Rs. 750 in 7 min time, and again came back to normal price range of Rs. 50-100. This abnormal movement from Rs.100 to Rs.750 have ruined few of the Market orders who wanted to buy around the range of Rs.100 but got the price at Rs.700 range and on the very moment came back to Rs.100 range, and lost approximately 650 points in few seconds. Which is a huge loss of Rs. 16000 on a single lot of Banknifty.
Solution:
Yes, if there is a problem, there will always a solution to it. The solution is to place a Limit order instead of a market order. Specially for all Algo trades, the order need to be executed at Market order to avoid any pending order, but with a Limit price, we can restrict the upside limit for a Buy order and downside limit for a Sell order.
Now the problem is, none of the available Algo based Robo tools are capable to execute Limit orders where the signals are automatic. The similar option is available for Manual order execution but not for Automatic order execution, specially in the multiple client order execution model.
Most of the Brokers trading systems are also not equip to handle these freak trades. Hence we need a Robo tool to handle these kind of orders where the order shall trigger Limit order with a % of upper and Lower limit price for Buy as well as Sell orders respectively, specially for Algo Trading.
