What is Program Trading?
What is Program Trading? Updated February 14,
The media talks about program buying or program selling constantly. CNBC lists Fair Value and program trading buy/sell levels every day. Exactly what is program trading?
That's a good question and there are really different answers and definitions depending on who you ask. Probably the best known definition of program trading is from the New York Stock Exchange. The NYSE says that any time a member firm executes a trade in 15 or more stocks simultaneously that are worth more than a million dollars, this "simultaneous trade" is to be defined as a program trade. Also that NYSE member firm that did that simultaneous trade must report that trade to the exchange. That is how the NYSE knows that program trading is over 70.00% off the volume almost every day, and on some days runs a lot lot more.
For our clients a program trade is one that encompasses the PREM with an exact predetermined execution level, either as a buy program or a sell program. And whether that trade is only one or two stocks, or 15 or 30 or more stocks, during the time that our PREM execution level is hit, is not as important to us as the actual PREM execution level being hit in the first place. That pattern of PREM execution levels hitting on certain days and at certain times is the key to Program Trading and High Frequency Trading. And not just for plain vanilla index arbitrage, either. The PREM is the key for all program trading and you have to know it and know it well.
Others define program trading as the purchase or sale of a large number of stocks contained in or comprising a portfolio. Sometimes you will hear clerks on the NYSE say that a sell program or a buy program is being done on the floor. But this type of portfolio change, typically done by mutual funds, is not important for our clients. If the PREM is not moving, then we do not consider it a true program trade.
If you have other questions simply contact us and ask. There is no such thing as a stupid question when it comes to Program Trading. And we are the only firm in the world that will answer your questions for you. We also have additional pages on our web sites that will answer a lot of your questions for you to study well. If you study Program Trading well, you will be well rewarded.