The Jane Street Scandal Serves as a Reminder of Another Cautionary Tale for Retail Option Traders.

The Jane Street Scandal Serves as a Reminder of Another Cautionary Tale for Retail Option Traders.
Market graphs : Image


Algorithmic transactions are nothing new in the Indian futures market, where the average daily trading volume has increased by nearly two times to Rs 440 trillion in only a single year.


The US-based hedge fund Jane Street made almost $1 billion in options last year because of a “secret” tactic.

Indian regular investors were the losers in the majority of these investments.

Jane Street argued that its most profitable trading approach had been in India, while in a Manhattan courtroom, it was suing Millennium Management Global Investment for allegedly copying its exclusive trading strategy.

Jane Street is alleging that two of its former workers “stole” the technique when they went to work for Millenium, their new employer.

Algorithmic transactions are nothing new in the futures market in India, where the average daily trading volume has nearly doubled to Rs 440 trillion in only a year.
But incidents like the one on Jane Street once againis set against smaller investors who venture into the world of options trading because of its high-risk, high-return nature.

Aside from Jane Street and Millennium Management, a number of other high-frequency trading platforms have gained recognition in India for their algorithmic-based tactics, including Graviton, Jump Trading, Alphagrep, Tower Capital, and Citadel Securities.
These companies generally engage in proprietary trading based on certain methods and execute trades using sophisticated algorithms free from emotional bias. Even though the gain on each trade is small, the sheer volume of trades that are done in a matter of seconds enables them to accumulate gains.

For modest investors, there are pre-defined strategies and algorithms accessible. That doesn’t, however, imply success.

Retail traders need to be aware that relying solely on an algorithm or particular technique won’t ensure financial success. Retail traders may fall prey to false claims made by some on social media, which is a problem that stems from misselling, mismarketing, and stoking greed. Exchanges and regulators have been working very hard to stop these kinds of misdeeds, said Kunal Nandwani of uTrade Solutions, a company that offers algo trading solutions.

During its most recent earnings conference, Angel One announced that it developed the Super App and released sections specifically for option strategies. These areas make it simple for traders to find and implement both pre-established and unique techniques.

“Traders view the expanding market as a business opportunity. Algo platforms for retail traders are still developing, nevertheless. It may continue to be a “winners take most” market until algo-based methods are more widely available for retail use. The major companies profit in a lot of other markets as well, Nandwani continued.

Sources claim that the Securities and Exchange Board of India (Sebi) is considering the creation of a new framework to close any regulatory gaps affecting algorithmic trading.
Algo-trades have raised worries about increased individual participation, even if brokerages using this technology are subject to basic restrictions.

Markets shield retail dealers. But there are people typing in a lot of orders who can use advanced tools and algorithms. Should they also be subject to the same safeguards as compensation and other things? A person with knowledge of the regulatory changes stated, “The risk and governance methodologies on these are unknown territory, and discussions are underway regarding how to address them.”

In the fiscal year 2021–22 (FY22), Sebi conducted a survey that found that around 90% of active traders had losses, with an average of Rs 125,000. Moreover, 90% of these individuals had an average net loss that was more than fifteen times higher than the profits realized by the 10% of those who turned a profit.

The study illustrated the differences between futures and options (F&O) traders. The top 1% of traders took home around 51% of the net profit, while the top 5% made up 75% of the total.

Published by : Reshraman