Dictionary of Finance and Investment Terms: program trading
program trading
computer-driven buying (buy program) or selling (sell program) of baskets of 15 or more stocks by index arbitrage specialists or institutional traders. "Program" refers to computer programs that constantly monitor stock, futures, and options markets, giving buy and sell signals when opportunities for arbitrage profits occur or when market conditions warrant portfolio accumulation or liquidation transactions. Program trading has been blamed for excessive volatility in the markets, especially on Black Monday in 1987, when portfolio insurance-the since discredited use of index options and futures to hedge stock portfolios-was an important contributing factor.
