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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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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.