At a time, not so long ago, trading on Dalal Street ran on the engine of technical analysis and intuition. During this era, experience was the edge and emotion-driven trades often led to deeper losses or at times, a last-minute rebound.
Cut to 2025 and things have dramatically shifted. Human intuition is being replaced by back-tested algorithms, streamlining trades with speed and discipline.
As markets evolved, instinct gave way to precision and trading strategies were digitised. With the entry of algorithmic trading, which quietly crept into Indian markets in 2008—initially for institutional investors—the trading playbook began to transform.
Since then, there has been no looking back. The pursuit of speed and accuracy, minus emotional decision-making, has rewritten the script of Indian stock trading. Algorithms are now the dominant force across investor categories, making up 57% of all trades in the equity cash segment in April, according to national stock exchange (NSE) data. This was higher than the 54% share seen in Financial year 25. Just two years ago, the number stood below 50%.
In the equity derivatives segment, the dominance is even more striking. Algorithm powered 69% of all trades in April. For financial year 25 overall, they accounted for 70% of trading in futures and options (F&O), NSE data shows.
Entry of the Bots
Algorithmic trading in India began its slow creep in the late 2000s, starting as a tool for big institutions with access to direct market access (DMA) routes. It was precise, fast and emotionless—a dream for mutual funds and proprietary desks seeking volume-based gains and hedging efficiency.
Algorithms refer to the use of software or coded instructions to execute trades in the market. In simple terms, one can programme a system to automatically place a buy or sell order or even carry out a more sophisticated strategy involving both the cash and derivatives (F&O) segments the moment certain predefined conditions are met.
Sebi's 2008 greenlight for DMA was a watershed moment. Suddenly, trades did not need a human to place them. Computers could execute thousands of orders in the time it took a trader to switch between tabs. By the mid-2010s, co-location servers, low-latency infrastructure and smart order routing had made high-frequency strategies routine work at large brokerages.
However, what started as a luxury tool—exclusive to the domain of institutional players to deploy their strategies with precision—still felt out of reach for the retail investor. Until it did not.
Retail Investors Join the Party
The storm of retail investors entering the stock market since the Covid-19 pandemic, alongside increased internet penetration and the democratisation of application programming interface (APIs) by trading platforms like Zerodha, Angel One and Upstox, brought algorithm out of institutional dealing rooms and into the hands of the common trader.
A Sebi study on F&O trading released in September last year showed that the availability of sophisticated trading platforms and lower transaction costs enabled retail investors to actively trade in Options and Futures contracts, contributing to the surge in market liquidity.
Angel One, a prominent trading platform, also attributes the rise of retail investors using algorithm to the availability of such tools by modern trading platforms, making automated trading accessible to a wider group of investors. This is a key reason behind the rapid increase in algorithm trades across the market.
Who’s Winning and Who Needs to Catch Up?
While accessibility to algorithm has drastically improved, adoption remains uneven. Sebi’s 2023 data shows only 13% of retail traders used algorithms—far behind institutional players, where 97% of foreign portfolio investor (FPIs) and 96% of proprietary traders relied on these tools.
But this seems less a disadvantage and more a signal to adapt, as algorithm offer what humans often struggle to achieve—emotionless trades with sharp speed. Algorithm deliver what markets now demand: speed, logic and discipline. It is time for retail investors to hold their hand, not avoid them. The numbers also support the thesis.
Data from Sebi’s report reveals that more than 9 out of 10 individual traders—that is, over 90%—suffered significant losses during the three-year period from Financial year 22 to 24.
In total, retail traders lost a staggering ₹1.8 lakh crore. This finding follows Sebi’s earlier report from January 2023, which had already highlighted that 89% of individual F&O traders lost money in financial year 22 alone.
Between Financial year 22 and 24, a whopping 93% of over one crore individual traders in the equity F&O segment incurred average losses of around ₹2 lakh each. The story did not even change depending on the experience of individual traders. Experienced as well as new traders met the same fate—deep losses.
Among new traders—defined as those who entered the F&O market for the first time in Financial year 24—a staggering 92.1% ended up in the red, with an average loss of ₹46,139, the Sebi report revealed. However, the picture does not improve much with experience. Traders who were active throughout Financial year 22, 23 and 24—considered regular or experienced—also bled red 88.7% of the time, with even bigger losses averaging ₹1.5 lakh.
However, the sharp hit taken by retail investors in the F&O market cannot be blamed on algorithm just because they performed better. A lack of strategy, experience and the inability to work with these sophisticated tools are cited as some of the reasons that delivered the blow to the retail community.
Then there was the case of several new-age retail participants flocking into derivatives on hearsay in the lure of high returns during a booming bull run—driven by social media or market noise—with no risk management strategies. In contrast, institutions ran tested, repeatable, automated strategies and reaped the rewards.
In Financial year 24 alone, prop firms and FPIs booked gross profits of ₹33,000 crore and ₹28,000 crore respectively, before transaction costs. Individual traders and others, meanwhile, absorbed losses exceeding ₹61,000 crore.
A bigger surprise? Most of the profits made by institutional participants came from high-speed algorithmic trading—with 97% of FPI profits and 96% of proprietary trading gains attributed to algorithm-based strategies, the Sebi report said.
These numbers paint a stark picture of how the market has increasingly shifted towards high-speed, precision trades using the power of algorithm—detaching a key element that made trades riskier: human emotion. When a majority of the ecosystem—especially deep-pocketed institutional players—has shifted towards well-executed, high-speed algorithmic strategies, human-like speed is bound to lose pace. To that effect, retail investors now need to equip themselves with new-age algorithm strategies to enter the F&O game on an equal footing or take on an even bigger risk of losing much of their capital.
Levelling the Playing Field
The markets regulator has time and again emphasised the risks involved with the staggering involvement of retail investors in the F&O segment. Sebi worries that, for many, derivatives trading has become financial gambling under the guise of investing. With massive intraday volumes and short holding periods, it is no longer about value but rather about chasing volatility.
There is also a resource mismatch. While institutional players use algorithms, back-tests and disciplined strategies, retail traders often rely on intuitions, screenshots and influencer advice.
This war between technology and emotion skews the playing field not because institutions cheat, but because they use better tools. To that effect, Sebi wants to protect retail investors from tools they are not yet trained to use.
The market regulator has taken cognisance of the risk it poses not just to retail investors, but to the market and economy at large. The rise in speculative behaviour, combined with the misuse of leverage and lack of discipline, can lead to wealth erosion at scale. Sebi wants to curb that—ensuring that retail participation is informed, intentional and better equipped with tools and education to navigate the market safely.
Accordingly, it has announced new rules, set to come into effect from August 1, 2025. The framework aims to certify and audit the algorithms made accessible to retail players. Brokers will act as the principal entities, while algorithm providers will function as their agents when offering API-based algorithm trading services.
All algorithm orders processed through APIs must carry a unique identifier provided by the stock exchange to establish an audit trail. Brokers must also seek exchange approval for any modification to approved algorithm.
Not just that—even tech-savvy retail investors developing their own algorithm will be required to register them with the exchange through their brokers if their orders exceed a specified threshold.
These regulatory changes aim to cleanse the availability of algorithm to those that actually empower retail traders rather than dupe them with dreams of explosive returns.
The road ahead looks mechanised. Retail traders who embrace automation early and combine it with strategies will have the tools to thrive in this new landscape. Because, at the end of the day, it is not about bots versus humans.
It is about humans using better tools. And algorithm, simply put, are tools that walk hand in hand with the market of today.
