Lesson plan
Program trading
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. Program trading is often used by hedge funds and other institutional investors pursuing index arbitrage or other arbitrage strategies. There are essentially two reasons to use program trading, either because of the desire to trade many stocks simultaneously (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 25% of the volume on the NYSE; index arbitrage made up less than 1%.
Article summary
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. Program trading is often used by hedge funds and other institutional investors pursuing index arbitrage or other arbitrage strategies. There are essentially two reasons to use program trading, either because of the desire to trade many stocks simultaneously (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 25% of the volume on the NYSE; index arbitrage made up less than 1%.
Key claims
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Discussion questions
- Summarise the article in your own words. Which single claim would you verify first, and why?
- Which claim in this article is most likely to be revised as the sources update? How would you check its current status?
- If two sources disagreed about one of these facts, what would you need in order to trust one over the other?
Bibliography
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Key claims and bibliography are generated from the same tracked claims and sources as the article page.