hft01 algorithmic trading. This is when a very complex computer

Program trading is casually defined as the use of computers in stock markets to engage in arbitrage and portfolio insurance strategies. More precisely, the New York Stock Exchange defines a program trade as a basket of stocks having either a total value of $1M (or more) and where the total number of stocks in the basket is 15 or greater.

Based on the definition above, it should be noted here that the term "program" in the context program trading is referring to a basket, portfolio or a collection of shares or securities, rather than a computer program, contrary to a common misconception.

Program trades need to be specifically marked as such when submitted to the exchanges, and there are certain restrictions placed on programs that do not apply to non-program trades (NYSE rule 80-A, for example).

In recent times, there has been a subset of program trading called algorithmic trading. This is when a very complex computer program takes an order and breaks it up into very small pieces (typically 100-300 shares per piece) and gradually submits these pieces into the market. The goal is to trade quickly enough to get your order done before others "catch on" to what you're doing, and at the same time to trade slowly enough so that you do not impact the stock by "walking the book".

Through the 1970s and early 1980s, computers were becoming more important on Wall Street. They allowed instantaneous execution of orders to buy or sell large batches of stocks and futures.

The most popular explanation for the 1987 crash was selling by program traders. Many blamed program trading strategies for blindly selling stocks as markets fell, exacerbating the decline. Program trading automates were actually answering to massive sell orders on the derivatives Futures markets initiated by mutual funds, arbitraging the mispricings between the two markets.

Program trading is extremely popular amongst hedge funds in which traders can partake in sophisticated strategies. Long or short positions are taken as desired technical conditions arise. Strategies are often based off of historical price activity. Computers allow traders to backtest their strategies on decades of historical data.