Small and micro-cap stocks are not only popular among retail investors, but also among high-frequency trading (HFTs) and algorithmic trading firms. Bulk deal disclosures on the stock exchanges show HFTs and algorithmic trading firms have increased their activity in these stocks in recent months. This suggests there may be significant profit potential in small and micro-cap stocks, making them a smart investment choice for those looking to profit from current market trends.
Not all algo trading firms are involved in high-frequency trading, but all high-frequency trading (HFT) firms are algo-driven. It’s worth noting that a growing number of HFTs are now active in shares with a market capitalization of less than Rs 500 crore, which has garnered attention from many market observers.
This behavior is not typical for the majority of HFTs, which usually seek profits in stocks that are eligible for derivatives trading. Capturing the spread between spot and futures prices is a common strategy for these firms.
If the stocks are ineligible for derivatives trading, they must be highly liquid. This is crucial for the strategy of most HFTs, as they move in and out of positions very quickly and do not hold positions overnight.
HFTs and algo firms are targeting stocks with a market capitalization of less than Rs 100 crore. For example, Libas Consumer Products, with a market cap of Rs 43 crore, has attracted the attention of Graviton Research, QE Securities, and HRTI, resulting in a surge in daily trading volumes. Similarly, Celebrity Fashions, with a market cap of Rs 98 crore, has been targeted by Graviton, Citadel Market Securities, and QE Securities.
