posted on 06-06-2019

Arbitrage Trading Program

Updated October 1, 2019

What is an Arbitrage Trading Program?

An arbitrage trading program is a software program that attempts to take advantage of very small price differences between securities, such as index futures and the underlying stocks represented. The program automatically scans for opportunities and places appropriate trades.

How Does an Arbitrage Trading Program Work?

Most arbitrage opportunities are notoriously short-lived, so the only way to take advantage is by using an arbitrage trading program. With an arbitrage trading program, a trader can give the computer instructions to execute arbitrage trades automatically by buying and selling stocks and futures based on specified guidelines. The program can then scan the market for opportunities at a much faster pace than a human and place orders without any hesitation.

Why Does an Arbitrage Trading Program Matter?

Arbitrage trading programs provide traders an opportunity to profit from short-lived arbitrage scenarios that they would otherwise likely miss.


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Related Definitions

Index
An index is a statistical aggregate that measures change. In finance, they usually refer to measures of stock market performance or economic performance. See More
Futures
Futures are financial contracts giving the buyer an obligation to purchase an asset (and the seller an obligation to sell an asset) at a set price at a future... See More
Stock
Stock, also known as equity, represents ownership interests in corporations. Whether you own one, 100 or 100 million shares of stock in a company, you're... See More
Arbitrage
Arbitrage is the process of exploiting differences in the price of an asset by simultaneously buying and selling it. In the process the arbitrageur pockets a... See More
Stock
Stock, also known as equity, represents ownership interests in corporations. Whether you own one, 100 or 100 million shares of stock in a company, you're... See More
Futures
Futures are financial contracts giving the buyer an obligation to purchase an asset (and the seller an obligation to sell an asset) at a set price at a future... See More
Market
A market is a location where buyers and sellers meet to exchange goods and services at prices determined by the forces of supply and demand. See More
Profit
Profit is the positive gain remaining for a business after all costs and expenses have been deducted from total sales. Profit is also referred to as the bottom... See More

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