Retail Algo Trading is a practice in which an investor is lured to authorize a computer software; and the software then automatically buys and sells share market trades in the investor account. Algo Trading has been touted as a technology advance in which a software will make money automatically for the investor by trading on its own.
Currently 8 out of top 10 brokers provide algo trading facility via API (Application Programming Interface). Algo trading facility is available for everyone and anyone. In 2017, hardly 5 brokers were providing API including Zerodha and Upstox. In 2020, the number went up to 30. Right now, more than 100 brokers are providing API facility. 8 out of top 10 stock brokers in India are providing API facility, including ICICI Securities.
There are several algo trading marketplace in India, provided by stock brokers or independent persons, like Angel Broking Smart Store, Alice Blue Trade Store, Tradetron and Algomojo. On such marketplace you can buy any algo based on the returns and profits it promises.
However, such algo trading is illegal. As per SEBI rules, only a Registered Investment Advisor can give financial advice. But these algos give financial advice without any regulation and compliance. Also, portfolio management cannot be done without prior registration with SEBI. However, algo platforms like Tradetron, Algomojo and Stoxxo offer portfolio management facilities by allowing to trade fully automatically in multiple client accounts with multiple stock brokers, without even requiring a daily login.
There is an old and very wise Native American adage:
"Every time you point a finger at others—there are three remaining fingers pointing right back at you"
So while we might sound very wise talking about data privacy norms being breached by Facebook, Google or any of those much prevalent Chinese Apps. We forget our own backyard where the Indian Stock Brokers are literally conducting organized theft on sensitive data, in ways that could more appropriately termed as most abhorrent and illegal.
People often think of Privacy as something like changing clothes in a trial room or talking to one’s fiancee or heart throb. Privacy is more generally linked to the feelings of embarrassment and shyness. In the digital world, privacy is thought about personal chats and social media actions. But what if someone asks you credit card details for swiping payments? Is it not like asking for car keys to steal it off? When sensitive data is compromised, it is not a violation of privacy; it is an act of theft.
These days most of the algo platforms are server based. So any trade done by an investor is invariably initiated and managed from these 3rd-party remote servers. The investors login credentials, stock transaction data (buy/sell orders) and funds deposited to broker are available in real-time to the SB. Using simple machine learning techniques, it is easy to find behavioural patterns of the investor. Machine learning coupled with AI based ‘expert systems’ when applied to stock transactions easily reveal weak spots of investors viz what makes them sway in greed and fear; what makes them increase trading volume, what makes them add funds to trading account, and the limits of fraud which make them become suspicious or complain.
Such snooping on traders’ strategies through multiple brokers allow algo platforms to copy trades of an investor who is smart and making money in stock market. It also allows them to take counter position against majority who will lose money.
The importance of protecting investor data is so important that SEBI mentioned it decades back, before the internet and computers. In SEBI’s Brokers Code of Conduct, it is mentioned in “Duty to the Investor”: “Breach of Trust: A stock-broker shall not disclose or discuss with any other person or make improper use of the details of personal investments and other information of a confidential nature of the client which he comes to know in his business relationship.”
However, these days all stock brokers share the investors transaction data with third party algo platforms. The data theft is the chief mechanism for enslavement of investors in the algo scam. Slavery is a very serious word which connotates denial of fundamental rights. Modern forms of slavery are sex trafficking, bonded labor, forced child labor or domestic servitude. The master has the idea of “ownership” as actual control of the slave, rather than the slave being a legally owned object. In slavery, another human being is considered as a “property” or “thing”. The “independence” of slaves is taken away from mind and spirit. Control of the slave comes from supervision. Supervision allows master to act against the actions of slave. Supervision also allows to the master to plan against resistance by the slave.
The current scenario with retail investors is similar to the slavery practice in the US in 1800s. Its considered normal because it is happening everywhere. An innumerable number of individuals which include Stock Broker Employees, Stock Market Educators, Software Developers and Financial Advisors are executing this scam peacefully.
Slavery was legalized with agreements such as sharecropping and convictleasing. The Algo Scam is indemnified by taking authorizations from investors and dubious API Policies. An exploitation in any form can never be legal. Blacks used to think they deserve slavery. They were made to believe they lack the ability to manage their own lives, and so will be happier when their lives are managed by others. Investors are made to believe that they lack the intellectual ability and mental discipline to trade and they should better buy a strategy which will manage their money. Utsav was fiercely ridiculed when he pointed the illegalities in algo trading.
William Ellison was African American, born into slavery in April of 1790 with the name April Ellison to a slave mother and white slavemaster father. Wanting to move up in society, he purchased his first slaves in 1820. By 1850, Ellison had 37 slaves while his sons owned another 16. This analogy is very similar for traders who lose money and realize they can’t trade with all their knowledge of Technical Analysis, perhaps being trapped by trading educators. If they do not have skills or opportunity to pursue something different in life, they utilize their knowledge in stock market to become ATS SBs. Algomojo’s founder, Mr. Rajendran takes pride how he sells everything from education to strategies to ATS to cloud to datafeed, but does not have the ability to earn a living by trading alone. His courses promise financial independence through trading alone, something which he has not been able to accomplish in last 10 years. Nevertheless, he has moved up in society and is showered respect in trader conferences by Brokers.
Once Utsav expressed concern to Mr. Rajendran why 80% of people lose money by following algo strategies from others? He nonchalantly answered, “What’s the big deal? 80% of people lose money in independent trading also”. The deal here is, people trading independently may lose money by their own mistakes, but people trading via his strategies work like slaves to generate income for him. Further, 20% of people who make money trading independently, make money genuinely and may settle with financial independence later in life. The 20% of people who make money using his strategies do so by his sheer manipulation, and will later lose that money also.
The influential people in 1800s used to think that slavery is too difficult to eradicate. Many honest Brokers and SEBI/NSE officials currently believe that the malpractices carried in the name of algo are too complex to regulate.
White supremacist used to take pride in their superior intelligence and abilities. They were proud of their white skin, facial features and the English culture. Tradetron is a company registered in US to dodge Indian laws. Tradetron’s founder, Mr. Umesh Ranglani takes pride how he opened a company in US without traveling to US. Mr achit Seth takes prides in his software for enabling SBs. Mr. Rachit Sethi, founder of Stoxxo, boasts about Stoxxo capabilities to allow any Tom, Dick or Harry to start portfolio management service on the homepage of his website.
The Blacks had to live whatever quarter or shanty the Whites decided for them to live in. They were tightly supervised and controlled. The retail investor trades are managed through thirdparty servers chosen by the SB for supervision and control. Blacks showed resistance all the time to slavery but could not organize a revolt. In day-to-day life, feigning illness, mishandling tools, running away were expressions of resistance. Even when investors “feel” they are being cheated, they are technically inadept to chase brokers. They may complain to the Broker and ATS provider, or switch their Broker and ATS provider to show unhappiness.
Slaves are not killed, but rather fed minimally to make them work. Similarly, investors do not lose money suddenly on these platforms. Investors lose money slowly trying one strategy after another and purchasing one ATS subscription after another.
But when the starving slave revolts, the master runs for shelter. Currently retail algo scam is being highlighted by many journalists. As a result, brokers have started updating their Terms & Conditions for providing API. SEBI is scrutinizing retail algo trading and a order is expected soon.
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