Investors have various styles of investing and use different horizons for their investment decisions. Some trade in indices, whilst others decide to engage in stock picking, selecting individual securities in certain markets for instance.
There are many categories, such as:
Stock index options are options on an index comprising many stocks - not an option on a single stock – in order to be exposed to an entire market by means of one transaction (i.e. buying the index option). This is much simpler and less expensive than buying shares of all the companies that are part of the index group.
Trading in ETFs
Exchange Traded Funds or ETFs, also referred to as index trackers, are investment funds traded on the stock exchange with the aim to replicate the underlying stock index. The ETF fund consists of a predetermined selection of 14 stocks in one ‘basket’ and is traded through computerised programmes set to exactly replicate the benchmark (i.e. the index). The biggest advantages of an ETF are lower costs and large flexibility in buying and selling ETFs as they can be traded any time during the trading day.
Programme trading essentially entails that a trader has entered his orders directly into the market's computer system and that based on the predetermined conditions (and the triggers) these orders are executed automatically. This computerised trading is predominantly used by institutional investors and hardly ever by retail investors.
High frequency trading
High frequency trading is a kind of algorithmic trading, using computer algorithms to rapidly trade securities with the aim to make a profit by means of high volume trading with lower margins.
In the event that an investor wishes to sell a large position in a company, the investor may turn to a broker to arrange a ‘block trade’ which is a privately negotiated transaction, which is traded outside of the stock exchange / electronic markets. In doing a block trade through a broker / investment bank, the volatility of the price can be managed better. The selling party will get an attractive price and the purchaser will be able to negotiate a discount off the market price.