Program Trading

Computerized trading undertaken by large institutions to exploit differences in price between expiring stock index futures and the underlying stock when both ought to be equal. The resulting arbitrage play produces essentially riskless profit. Program trading has been criticized for creating market turmoil, in effect producing risk-free profits for practitioners while increasing volatility for everyone else. But advocates of program trading say it makes a more efficient market by eliminating price differences between two items that are essentially the same.

 

 

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