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Simple English definitions for legal terms
program trading
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A quick definition of program trading:
Program trading is a type of computerized trading where large amounts of stocks are bought or sold at the same time as index futures are sold or bought in equal amounts. This is done to offset any potential risks.
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A more thorough explanation:
Definition: Program trading is a type of computerized trading of securities that involves buying or selling large amounts of stocks while simultaneously selling or buying index futures in offsetting amounts.
Example: A hedge fund uses program trading to buy 10,000 shares of Apple stock while simultaneously selling 10,000 shares of the S&P 500 index futures. This allows the fund to profit from the difference in price between the two securities.
Explanation: Program trading is a strategy used by institutional investors, such as hedge funds, to execute large trades quickly and efficiently. By using computer algorithms, program trading can buy or sell thousands of shares of stock and futures contracts in a matter of seconds. This type of trading is often used to take advantage of market inefficiencies or to hedge against potential losses.