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How RAIN is democratising algo and quant trading for retail investors

For most retail traders who’ve been pouring into the market over the last couple of years, mutual funds have been a natural sanctum sanctorum. And that’s because they not only offer people the opportunity to invest in instruments that are carefully managed by a fund manager, but are also perceived as a relatively safer option that net better returns for a population that has been tying up its money in fixed and recurring deposits, and physical gold.

But for the average middle-class investor and newly salaried employees, mutual funds and instruments such as government and corporate bonds, digital gold, etc, hardly move the needle in terms of wealth accretion, says Harsh Agarwal, an asset manager and hedge fund operator who’s been in the field for over a decade.

“Investing in mutual funds adds value to people who have crores of rupees and earn returns in tens of thousands. Retail investors with a corpus of Rs 1 lakh to Rs 10 lakh will not really see any substantial value addition from investing in mutual funds, even if they remain invested for a longer-term…the returns they earn make very marginal difference to their net worths,” he adds.

Stock markets are the answer to that conundrum — and if you really think about it, it does make sense too. Every big investor today, from Warren Buffet to Rakesh Jhunjhunwala, grew their wealth by playing the market, whether it was via sentiment trading or quantitative trading.

That sounds good and easy on paper. But a majority of Indian retail investors are young and don’t understand the ‘share bazaar’ completely. Even for the savviest, well-read investors, algorithmic and quantitative trading is beyond their ken because it takes some deep-diving into the world of financial markets to really understand what the squiggly lines on the many charts mean.

And while there are brokers, investment managers and traders who can help with that, it’s a task and a half to seek them out, sign up with them, pay hefty brokerage fees, and let them make money decisions on your behalf.

Enter RAIN Technologies, co-founded in 2020 by Harsh and Raghu Kumar, who has founded India’s second-largest online trading platform Upstox.

A snapshot of RAIN’s marketplace platform (Source: RAIN Technologies)

RAIN is a B2C platform best described as a marketplace for algorithmic trading strategies. It helps users who already trade online using companies such as Upstox and Zerodha plug in their accounts on the platform, pick strategies posted by various brokers from all over India, and invest in those trading strategies.

The online strategies marketplace platform was launched in the first week of July this year, in a closed beta programme. The startup tells YS it had nearly 2,500 users on its waitlist currently, and has been processing over 7,000 to 12,000 orders worth $50 million to $60 million, daily.

Making algo trading less scary

RAIN enables traders and asset managers to come and create multiple trading strategies on the platform – including setting up all manners of automation – and sell them to investors. Investors, in turn, pay a subscription fee for each strategy they subscribe to, which goes directly to the trader.

“RAIN is like the Netflix of the stock trading world. You scroll through various options, and then you pick one thing to watch. Similarly, you sift through hundreds of different trading strategies posted by traders from across firms, and you invest in the one you like the most,” Harsh tells YS in an interview.

“Algo trading, especially, has a lot of positives and upsides to offer investors — and we want to make that easy for the common man to access,” he adds.

Algorithmic trading uses tech and computational resources to make trade decisions, which can be a daunting task for novice traders to undertake with their limited knowledge of the financial markets. Traders, however, are well equipped to set up these automated trades based on a host of variable factors, including price, time and volume.

Once users subscribe to a strategy, they’re asked to log in to their online trading accounts on platforms such as Zerodha or Upstox. All trade executions happen automatically after that, including any changes to the portfolio mix.

“Our aim is to make the fearful world of trading hassle-free and palatable,” Harsh says.

Business model

RAIN currently has equity-based strategies on the platform, but it hopes to add cryptocurrency and global stocks to its mix in the near future.

It earns revenue in a couple of ways: one, as a percentage of the subscription fee users pay to strategists to subscribe to their models.

Second, from brokerage and trading companies that use the automation feature of RAIN’s platform to set up their own trading layers, but don’t publish or divulge those strategies to the masses. Instead, they set up closed rooms for their existing clients, who they also onboard onto the platform.

General users can invest as little as Rs 10,000 in algo and quant strategies on the platform based on personalised factors such as risk appetite. The platform currently has over 20 strategies running already, which the startup is mainly using to collect feedback and put the product through its paces.

In the next month, it plans to onboard at least 10 to 12 publishers, each with around 100 strategies.

The Bengaluru-based startup serves both retail and institutional investors, although retail investors are likely to find more value in the product. Its competitors include AlgoBulls, Tradetron Inc, and Algoniti, among others.

There are clear indications that retail investors are investing in the stock market in their own capacities. An SBI report said that the number of individual investors jumped to a whopping 142 lakh in FY21.

On the other hand, the share of individual investors in total turnover on the stock exchange rose to 45 percent, from 39 percent in March 2020, data from the National Stock Exchange, showed — which basically means that individual investors buy and sell nearly half of the average daily trading volume on the exchange.

Intelligent tech solutions such as RAIN’s, which automate and simplify the world of stock trading, solve very basic problems those still on the fence about stock trading have — and there’s ample room for such companies to grow.

Edited by Teja Lele Desai

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