India stock market retail traders face risks from HFT speed advantage

The Indian stock market is experiencing a surge in retail participation, particularly within the derivatives and options markets. However, a significant technological gap has emerged between individual investors and high-frequency trading (HFT) firms.

HFT firms utilize advanced algorithms and high-speed computing to execute trades in fractions of a second, allowing them to capitalize on minute price fluctuations. In contrast, retail traders typically rely on standard trading applications and lack the high-level connectivity and processing power required to compete with these professional entities.

Data from the Securities and Exchange Board of India (SEBI) highlights the financial risks associated with this disparity, showing that 93% of individual futures and options (F&O) traders incurred losses over a three-year period.