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Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Arbitrage Trading Program

What it is:

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 it works (Example):

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 it Matters:

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