What is Program Trading?

Answer:
Program trading refers to the large scale buying

or selling of a high amount of stocks in a portfolio. The term came into being after institutional investors and index funds began using a targeted program or campaign to buy and sell large amounts of stocks in order to replicate a particular stock index.

The NYSE defines program trading as a strategy that involves a transaction of 15 or more stocks with a total value of over one million dollars.

There are numerous program trading strategies including index arbitrage, liquidation of facilitations, portfolio management, and liquidation of EFP stock positions.

Program trading also refers to the use of computer aided strategies for buying or selling stocks. Computer programs monitor various securities and markets for profitable opportunities and then sends buy or sell signals. For example, a trader might program certain trades to take place when price discrepancies are found between stock markets and stock index futures.

When the computer program finds a programmed trigger, it will automatically initiate a trade. While program trading can involve computers, it doesn’t necessarily do so. Think of the term program as a pre-arranged sequence of steps.


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