Program Trading

Program trading is the trading of stock baskets in large volumes and in some cases very frequently. using algorithms. The algorithms are programmed and make the trades while humans monitor them.

The NYSE defines program trading as the sale or purchase of 15+ equities with a 1 million dollars or more of market value. Basket trading and portfolio trading are other names for program trading.

Program Trading

How Program Trading Works

accordance with a set of guidelines. For instance, a certain algorithm may purchase a portfolio of 30 equities during the morning hours.

Program trading is particularly used by institutional investors – like mutual fund traders and hedge fund managers – to carry out high-volume trades. This type of trading and order execution can decrease risk. It can increase profits by using inefficiencies in the market, as it is less effective to place so many orders manually.

On a regular trading day in 2018, program trading amounted to between 50 and 60 percent of all trades in the stock market. This type of trading was anticipated to be responsible for 70-80 percent of all trades made on the US stock market on regular trading days in 2021. Moreover, this percentage climbed to around 90 percent at times of high volatility.

Several investing-related realizations have considerably aided program trading. One is that the trade of a diverse variety of assets lowers the risk associated with investing.  Plus, thanks to technological advancements, program trading is more efficient and profitable. Finally, an institution can carry out its different strategies in a more efficient manner because it trades and holds a big fraction of stock.

Companies use automated trading systems that carry out massive amounts of trades daily. Depending on the company and the program’s strategy, the frequency and volume of program trading vary substantially. 

Numerous market players attributed the high volatility that led to large crashes in the market in the 1980s and 1990s to program trading. To reduce volatility, some important rules were introduced by the NYSE that prohibit investors from practicing program trading at specific times. Circuit breakers or trading curbs are terms used to describe restrictions on program trading.

How Program Trading is Used

Program trading is used in the market in various ways and for various reasons. The first way is principal trading. Brokers can employ program trading to purchase equities under their accounts that they anticipate their values will increase. Once this happens, brokers can onsell the equities to their clients to make more money in exchange for a commission. 

In addition, program trading can be used by investment management companies that buy securities in the model portfolio of the company just for their clients, which is called agency trading. After the purchase of the securities, they get allocated to the accounts of the clients. 

The fact that comparable assets can be mispriced can be taken advantage of through program trading, called basis trading. An investment manager may utilize program trading to purchase undervalued securities. 

About the author

Ziga Breznik is the owner and head of research at – he is an active investor in the forex, crypto and stock markets – he has seen trading platforms disappear along with his investments – especially during the “crypto boom”. Ziga learned the hard way that finding a reputable and trustworthy online brokerage is key to long-term success in the financial markets. He founded as a platform where he shares his research with one goal in mind: to provide unbiased and trustworthy online brokers reviews.