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If programs are such a high volume of the total market that makes no sense at all. |
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I think 'program' trading, in a narrow sense, refers to those arbitrage activities where stock bought/futures sold or stocks sold/futures bought, whereas there is also a broader sense in which the word is used to refer to other types of automated activity. I think the best word to encompass all the types of automated activity executed by computers/robots is algorithmic trading. Wikipedia, while not a definitive source, has a good selection of articles and links about
algorithmic trading.
Back to program trading and the phenomenon you described Darth. My understanding (poor though it is) of program trading (in the narrow sense described in previous paragraph) is that it is purely arbitrage, and it will account for some (quite a few) of the short, sharp moves in the futures, bringing the cash and futures 'into line'. I think an extended move like the one you described is not arbitrage but more of a directional strategy? I am out of my depth here but I think we can uncover some valuable information if we continue on with this thread. I like your attitude of trying to find utility in this stuff too, let's not just understand this stuff, lets use it to our advantage.
Also, I am looking forward to the movie 'Terminator 4: Defeat of the Algos'.
