Program trading

Program trading

Program trading is casually defined as the use of computers in stock markets to engage in arbitrage and portfolio insurance strategies. However, the New York Stock Exchange (NYSE) defines the term as "a wide range of portfolio trading strategies involving the purchase or sale of 15 or more stocks having a total market value of $1 million or more" without any direct reference to the use of computerscite web | publisher = NYSE Group, Inc. | date = 2007 | url = http://www.nyse.com/glossary/1042235995760.html | title = Program Trade | accessdate = 2007-10-13] . The word "program" can be interpreted in its earlier, more general meaning of a defined and pre-arranged sequence of steps, rather than specifically a computer program. Some program trading strategies are subject to regulatory restrictions. For instance, NYSE Rule 80A requires index arbitrage trades to be marked when submitted.

In recent times, there has been a subset of program trading called algorithmic trading. This is when a computer program takes a large order, breaks it up into small pieces (typically 100-300 shares per piece), and gradually submits these pieces to the market. The goal is to complete the order without other market participants realizing that a large trade is in progress, because they would change their behaviour (and thus the price) to the detriment of the program trader if they recognized a large trade.

Through the 1970s and early 1980s, computers were becoming more important on Wall Street. They allowed instantaneous execution of orders to buy or sell large batches of stocks and futures; and the novelty of program trading is the most popular explanation for the 1987 crash. Many blamed program trading strategies for blindly selling stocks as markets fell, exacerbating the decline.

Program trading is extremely popular in hedge funds, where traders automate sophisticated strategies that would be difficult to put into practice without computer assistance. Computers also allow traders to test their strategies against historical data in an attempt to predict and optimize them for future conditions.

External links

* [http://www.nyse.com/press/circuit_breakers.html New York Stock Exchange Circuit Breaker Levels]
* [http://www.econlib.org/LIBRARY/Enc/ProgramTrading.html The Concise Encyclopedia of Economics]

References


Wikimedia Foundation. 2010.

Игры ⚽ Нужен реферат?

Look at other dictionaries:

  • program trading — Trading on financial markets using computer programs. The programs used trigger trading automatically once certain limits are reached. It was said to account for some 10% of the daily turnover on the New York Stock Exchange in the late 1980s and… …   Big dictionary of business and management

  • program trading — n. the use of sophisticated computer programs to execute large orders to buy and sell stocks and futures * * * …   Universalium

  • program trading — n. the use of sophisticated computer programs to execute large orders to buy and sell stocks and futures …   English World dictionary

  • program trading — trade based on signals from computer programs, usually entered directly from the trader s computer in to the market s computer system and executed automatically. Applies to derivative products. A process of electronic execution of trading of a… …   Financial and business terms

  • Program trading — Trades based on signals from computer programs, usually entered directly from the trader s computer to the market s computer system and executed automatically. The New York Times Financial Glossary * * * program trading program trading ➔ trading… …   Financial and business terms

  • Program Trading — Computerized trading used primarily by institutional investors typically for large volume trades. Orders from the trader s computer are entered directly into the market s computer system and executed automatically. Program trades are usually… …   Investment dictionary

  • program trading —   I program trading o programmi di trading sono dei sistemi automatizzati di compravendita, utilizzati dal trader per effettuare automaticamente operazioni di arbitraggio fra posizioni contanti e strumenti derivati, speciamente nel mercato… …   Glossario di economia e finanza

  • program trading — noun a trading technique involving large blocks of stock with trades triggered by computer programs • Hypernyms: ↑trading …   Useful english dictionary

  • program trading — noun Date: 1984 computerized trading of large blocks of stocks in one market and stock index futures in another so as to take advantage of price differentials between the markets …   New Collegiate Dictionary

  • program trading — / prəυgræm ˌtreɪdɪŋ/ noun the practice of buying and selling shares according to instructions given by a computer program (the computer is programmed to buy or sell when certain prices are reached or when a certain volume of sales on the market… …   Dictionary of banking and finance

Share the article and excerpts

Direct link
… Do a right-click on the link above
and select “Copy Link”