Program trading – the computerised exchange of vast sums of assets – has champions and critics in equal measure.
It has been blamed for some of the market's biggest excesses and some of its blackest moments in recent history. But it also helped provide a key source of liquidity through the financial crisis and beyond.
For retail traders, it has been both a godsend and devil made. Bid-ask spreads have narrowed, making profit (and, indeed, losses) easier to come by and broker commissions more difficult to charge.
But at the same time increased bouts of volatility can be exacerbated by program trading and it was considered responsible for the 2010 "flash crash".
What is program trading?
Modern definitions of program trading refer to computerised or electronic dealing, but more specifically techniques such as algorithmic or high-frequency trading (HFT).
Complex computer algorithms, or "algos", are used to trade vast quantities of shares or foreign exchange by just a few points, even fractions of points.
Buying and selling occurs in nanoseconds and because of the large volumes traded at a time, huge profit can be made on the price moving by just a single pip.
Who's doing it?
Mainly large institutions indulge in program trading.
Buy side firms such as hedge funds and mutual funds, are involved but more often than not it is specialised HFT firms, and banks’ proprietary trading desks.
It is a highly-specialised sector of financial trading due to the technological skills needed to devise algorithms that recognise certain patterns of trading.
It is also a high cost enterprise as the hardware that cuts down latency – the time taken to complete a single trade – is dependent on the placement of servers, routers and other necessary equipment, as near as possible to the location of the financial exchange.
If such equipment can be placed adjacent to the exchange's servers – a process called co-location – latency can be improved and HFT algos can react to changes in prices a second or so ahead of the investing masses.
Exchanges, however, charge millions of pounds for such privileges.
When it goes right
Given the distinct advantage presented by co-location HFTs and other algo traders can make millions on tiny blips in asset prices thanks to the reduced time it takes to act on the information and complete the trade.
As technology becomes ever more advanced, with the introduction of cloud computing and machine learning/AI, the human factor – which is responsible for the vast majority of trading errors – can almost be eliminated from trade.
Although the cloud is not particularly useful in executing program trades, it can be an enormously useful tool at the beginning of the process.
Using cloud's massive computational power to design and stress test algorithms, possible errors can be eliminated or compensated for.
Critics say program trading has few intrinsic benefits.
Shares are rarely held long enough to aid investment and it is merely an information arbitrage, but the industry has always countered with its importance as a liquidity provider.
But when it goes wrong
Philip Stafford, the maestro behind FT.com's Trading Room, reminds us here of how spectacularly wrong program trades can go with his top four trading disasters.