Program trading is a term that is also used in at least two different (though similar) meanings. The original use of the term was used to mean that stocks would be sold according to a set program. This was usually done so that large volumes of stock could be sold without letting anybody else trading on the market know that this was happening.
In this case, the stock would be split up into sets of a few hundred shares and sold. Then, a set time later, some more stock would be sold until the entire batch was gone. There are some set-backs to this type of trading, as will be mentioned later. This strategy can pay off, but it can also cause some serious problems in the stock market.
The other definition simply adds that this is usually done with computers. Many people will set up these trades according to a computer program that will do the work for them. These trades are also called algorithm trades as well since the computers are usually set up with programmed algorithms to determine when to trade and how much should be traded.
Another definition of program trading states that it is a sale of more than fifteen different stocks with a total value of at least a million dollars. Therefore, to combine the definitions: program trading is a large sale of stock that is usually carried out according to a set program, sometimes by a computer.
The downside of program trading is that it can sometimes have drastic effects on the stock market as a whole. In fact, the stock market crash of 1987 is sometimes blamed on program trading. This is due to the fact that any program trading will continue on the program until it finishes selling the large volume of stock that was set to be traded. If other people catch on to the trading while it is in progress, then it is likely that there will be a huge sale of other stock as well, causing prices to plummet.
Therefore, while program trading is a definite trading strategy, it is most commonly associated with hedge funds and other types of investments that you are probably better off avoiding.