Feasibility Study and Framework Development for Algorithmic Trading in Pakistan

Project Title

Feasibility Study and Framework Development for Algorithmic Trading in Pakistan

Project Area of Specialization Computer ScienceProject Summary

The use of computer programs to execute trades on stock exchanges is called algorithmic trading. The emergence of Artificial Intelligence and Machine Learning has sped up the worldwide growth and utilization of algorithmic trading even more.

North America is the biggest market in this area, and it is still growing by leaps and bounds developing specialized high-frequency trading platforms. Algorithmic trading accounts for around 60-73% of the overall US equity trading (source: Wall Street).

Asia Pacific region is expected to witness profitable growth due to rising adoption of automation through software from countries such as India, Japan, Philippines, and Singapore.

In India, algorithmic trading accounts for nearly 50 percent of all trading volume in the country after permission was given in 2008.

We propose a complete study of Pakistani financial markets to kick-start the use of algorithmic trading using technical indicators and machine learning algorithms. As there is no existence of any such setup in Pakistan so far, the study will be divided into two phases, i.e., the regulatory aspect and framework development from the point of view of brokers and traders.  A complete system methodology from start till executing automated orders is proposed.

Project Objectives

Making use of fast expanding market and underlying technological advancements with the rising trend of algorithmic trading, our goal is to attract many players to develop comprehensive suites of software and services for all trading types. 

The use of algorithmic trading in Pakistani stock markets will have the following benefits

• Reduce the risk of human error.
• Automate the process of trading
• Generate higher profit margins by using mathematical models for prediction.

Project Implementation Method

As there is no such setup introduced in Pakistan so far, a complete survey of the stock markets will be conducted to highlight the entire setup and steps that need to be taken to make this way of automated trading realistic in Pakistan.

The regulatory approval can allow providers to create algorithmic trading platforms that can be used by trading firms and retail traders to switch to the new way of trading. The availability of these platforms will allow computer scientists with some background knowledge of financial data to use pre-existing strategies to perform trades or develop newer strategies to further improve the profitability and the speed of executing these orders.

Steps that make you start Algorithmic Trading in Pakistan:

1. Gaining an in-depth understanding of financial markets.
2. Conduct literature survey of existing emerging markets around the world to propose regulations needed to legalize algorithmic trading in Pakistan, and to keep track of all trades performed by the machines and track them for audit purposes.
3. Develop a trading API to allow a trader to connect his application to the broker’s trading platform to connect to the exchange for market quotes.
4. Select a market in which you want to trade.
5. Developing a Trading strategy that makes you win over the rest of the participants.
6. Coding your Strategy in C++, python or any Programming language.
7. Backtest your Coded strategy on historical data to check its accuracy and validity. Paper test your developed strategy in real-time with commissions involved.
8. Going live into the market with proper risk management.

Extra Note: You can also use Cloud computation for Automation.

Benefits of the Project

The use of algorithmic trading in Pakistan will help in the following ways

• Reduce transaction costs
• Maximize profit and control market risk
• Faster execution with less risk of human errors, simultaneous focus on several market conditions

Technical Details of Final Deliverable

The final deliverable will be

• A complete survey of Pakistani Financial markets
• The steps required to legalize and regulate the process of algorithmic trading
• A complete framework with the trading API
• An experimental analysis of different strategies for stock market prediction 

Final Deliverable of the Project Software SystemCore Industry ITOther IndustriesCore Technology OthersOther TechnologiesSustainable Development Goals Good Health and Well-Being for People, Industry, Innovation and InfrastructureRequired Resources

Item Name	Type	No. of Units	Per Unit Cost (in Rs)	Total (in Rs)
			Total in (Rs)	70000
Trading software subscription fee	Equipment	2	30000	60000
Miscellanous	Miscellaneous	1	10000	10000