Program trading is a type of trading in securities, usually consisting of baskets of fifteen stocks or more that are executed by a computer program simultaneously based on predetermined conditions. There are essentially two reasons to use program trading, either because of the desire to trade a large number of stocks at the same time (for example, when a mutual fund receives an influx of money it will use that money to increase its holdings in the multiple stocks which the fund is based on), or alternatively to arbitrage temporary price discrepancies between related financial instruments, such as between an index and its constituent parts.
According to the New York Stock Exchange, in 2006 program trading accounts for about 30% and as high as 46.4% of the trading volume on that exchange every day. Barrons breaks down its weekly figures for program trading between index arbitrage and other types of program trading. As of July 2012, program trading made up about 30% of the volume on the NYSE; index arbitrage made up less than 1%.
Other articles related to "program trading, program, trading":
... If there is a sufficiently large difference the arbitraging program will attempt to buy the relatively cheap level (whether that is the basket of stocks which make up the index or the index ...
... later SuperDOT), which routed orders electronically to the proper trading post, which executed them manually ... Program trading is defined by the New York Stock Exchange as an order to buy or sell 15 or more stocks valued at over US$1 million total ... In practice this means that all program trades are entered with the aid of a computer ...
... In program trading, orders are generated by a software program instead of being placed by a trader taking a decision ... More recently, it is rather called algorithmic trading ... A typical usage of program trading is to generate buy or sell orders on a given stock as soon as its price reaches a given threshold, upwards or downwards ...
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