Pair Trading by Ratio - what function/setting?

S

Sup3r Hanz

Hi I'm trying to manage a long/short equity portfolio via pair trading. I would like to create a stop limit of 10% for the spread ratio.

For example I want to deposit $500 in each position:

long: lng $48.99
short: dssi $8.55

Current spread ratio = 5.73
Ratio at 5.15 =10.12% loss in the spread.

I would therefore like my stop loss at 5.15 by limit order.
I think the scale trader is the best way to manage this?

Scaletrader and attach pair doesn't seem to offer this (seen below)

https://www.interactivebrokers.com/en/software/tws/usersguidebook/algos/scaletrader_for_pairs.htm

https://www.interactivebrokers.com/en/software/tws/usersguidebook/ordertypes/attach_a_pair_trade.htm

If anyone could point me in the right direction I would be extremely grateful.
 
Ridiculous. Pair orders are already non-guaranteed because they cannot be reliable, while stopping is also unreliable even on a single stock, so imagine the two combined. Many people already want to sue their brokers for getting stopped out of a single stock at a wrong time/price, so imagine the mess of getting stopped out of two stocks at the same time.
Even if you had this feature, you’d stop using it after couple stops.
And really why trade pairs if you need stops. The purpose of trading pairs is to have built-in hedge, thus not requiring stops. You can manually decide when to stop trading your hedged position.

Though if you really want to try, you could try trading custom combos:
https://www.interactivebrokers.com/en/index.php?f=744
 
Pair trades are best used going long/short a stock and the opposite with it's corresponding index or at least two stocks in similar industries. If you get stopped out technically both positions should be closed. Same with hitting whatever target you have. The problem with the pair you indicated is that the companies don't seem to share an industry so it's hard to even call it a pair trade, so I can't assist with your math. I would recommend looking for hedge fund commentaries that specialize in long/short portfolios though.
 
The only platforms that can come close to doing this are TradingTechnologies and CQG's AutoSpreaders. They do ratio and difference-based spreads. However, TT doesn't trade stocks, and I don't think CQG does either. (They are both very expensive too).
 
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