There has been a serious allegation made by the National Stock Exchange of India (NSE) on a well-known global trading firm, Jane Street. According to a detailed report published by Moneycontrol, NSE’s surveillance system flagged some of Jane Street’s Futures and Options (F&O) trades on the exchange platform. The concern raised by NSE revolves around a specific trading pattern – one where Jane Street first opens a position in a particular direction and then quickly reverses it. What’s even more intriguing is that both trades – the entry and exit – were done with the same counterparty.
This kind of trade pattern raised suspicion within NSE, which led them to reach out to Jane Street’s custodian bank to get clarification. The custodian responded by stating that these trades were entirely algorithm-driven, meaning they were not executed by humans but by machines. These algorithms, according to the response, are powered by Artificial Intelligence and can operate in microseconds. They claimed that there was no malicious intent behind these trades.
While the investigation is still ongoing and no final conclusion has been reached yet, the incident has sparked fresh discussion within the trading community about algo-trading and strategies like Orderblock, which are part of the Smart Money Concept (SMC), also known as ICT-SMC developed by Michael J. Huddleston.
What is an Orderblock in Trading?
In trading, especially in the world of Smart Money Concepts, the term “Orderblock” plays a significant role. An orderblock refers to the last candle in the opposite direction before a big move.
- If the market is going to move up, the last bearish (down) candle before the upward move is called a Bullish Orderblock.
- If the market is going to move down, the last bullish (up) candle before the drop is called a Bearish Orderblock.
This idea is based on the belief that the market often creates a fake move in the opposite direction to grab liquidity before making the real move. This is also known in simple terms as stop hunting. The goal is to remove weak traders from the market by hitting their stop-loss orders.
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In the Jane Street case, the pattern observed — opening a position and then reversing it with the same counterparty — could resemble a fake move or liquidity grab like what we see in the orderblock theory.
Algo and Derivatives Trading Boom in India
In recent years, algo and derivatives trading has seen a massive surge in India. At the same time, retail participation has also exploded. More and more young traders and investors are entering the market, especially in the F&O segment.
To tackle the rising risks and to protect retail investors, SEBI introduced a series of new rules. These included increasing the lot size of F&O contracts, raising margin requirements, and other steps designed to reduce speculation and bring down overall trading volume.
These new rules have indeed shown some impact. The F&O volume has seen a notable drop, and retail participation has cooled off to some extent. But incidents like the Jane Street probe show that algorithmic trading is still very much active and can play a large role in market movements.
Financial Growth of Jane Street – What Is a Prop Trading Firm?
Jane Street Capital, a prominent proprietary trading firm, has experienced remarkable financial growth in recent years. In 2024, the firm reported a net trading revenue of $20.5 billion, nearly doubling its previous year’s earnings of $10.6 billion. This substantial increase underscores Jane Street’s significant role in global financial markets.
Proprietary trading firms like Jane Street operate by trading financial instruments using their own capital, rather than on behalf of clients. This approach allows them to retain all profits from their trading activities. Jane Street’s success is attributed to its expertise in high-frequency trading, market-making, and the use of sophisticated algorithms and artificial intelligence to execute trades across various asset classes and global markets.
The firm’s impressive financial performance reflects its strategic expansion and technological advancements, solidifying its position as a leader in the proprietary trading industry.
The Debate on Fairness and Transparency
This probe also brings back the age-old debate – is algo trading fair? Can machines really play a level field with retail traders? Machines can make decisions in microseconds. They don’t feel fear, greed, or panic. They just follow code and logic.
While there’s nothing illegal about using algos, the worry is about whether these systems are being used in a way that manipulates market conditions or takes unfair advantage of retail participants. That’s what NSE is trying to find out in this case.
The custodian has said that Jane Street’s trades had no bad intent and were fully machine-driven. But regulators want to ensure that there’s no pattern of manipulation or misuse of market structure.
Why Retail Traders Should Be Aware
Retail traders must understand that the market is not just a game of charts and indicators. There are big players, high-frequency traders, and algos operating behind the scenes. Strategies like Smart Money Concepts or Orderblocks are attempts to understand what these big players might be doing.
Understanding concepts like orderblocks can help retail traders avoid traps and fake breakouts. These theories suggest that markets are often moved by institutions to trigger retail stop-losses before the real move happens.
So when you see a sudden fake move in the market and then a quick reversal, think about whether that was just a stop hunt. These concepts aren’t perfect, but they give you a different way to see the market.
Conclusion
The probe into Jane Street’s F&O trades by NSE is still underway. Until the investigation is complete, we cannot say for sure whether any rules were broken. But this situation has shed light on how sophisticated modern-day trading has become. With machines, AI, and algorithms entering the market, trading is evolving faster than ever.
Retail traders must keep learning and stay aware. Understanding advanced concepts like orderblocks and being aware of how big players operate can offer an edge in this fast-paced environment.
Disclaimer- This article is for informational and educational purposes only. It is not intended as an inducement to trade or invest. All views expressed here are general in nature and should not be considered as financial advice. Always consult a certified financial advisor before making any investment or trading decisions.