Pair Trading Strategy Journal

Quote from Dr Who:

The downside with the IG Markets CFD account is that in order to overcome their minimum commission of �10 at either end, you need to be trading in some reasonably substantial numbers.
I estimate you need to be buying at least 1000 shares of around �8 or so each which would require a margin of around �2000. So, for each pair you'd need a margin of around �4000. So, to be actively trading 5 pairs a day, with each lasting in the region of 9 days say, you may have to finance 80 or more margins at any one time. This means an account of around �160,000.

Perhaps jonnysharp or any others who actively trade CFD pairs could let me know how their numbers compare.
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Sounds like those numbers are a little large... I thought jonnysharp was trading around 3 or 4 pairs when he started this thread with an initial investment of £30k.

Maybe if these figures are correct, then spreadbetting is a good way to go?
 
Quote from Dr Who:

The downside with the IG Markets CFD account is that in order to overcome their minimum commission of £10 at either end, you need to be trading in some reasonably substantial numbers.
I estimate you need to be buying at least 1000 shares of around £8 or so each which would require a margin of around £2000. So, for each pair you'd need a margin of around £4000. So, to be actively trading 5 pairs a day, with each lasting in the region of 9 days say, you may have to finance 80 or more margins at any one time. This means an account of around £160,000.

Perhaps jonnysharp or any others who actively trade CFD pairs could let me know how their numbers compare.
More...

I think most of us here including Johnny who actively use PTF have at most 8-15 open pair positions on average. To find 5 new quality trades each and every day is way to much of what you could expect.
 
Sure, I think 5 may be too many to hope for. My own pairs seem to provide me with about 3 pr day on average. But with the average trade lasting about 9 days that would mean 27 pairs or 54 CFDs open at one time maximum. This still means around £100K account.
So, its a balancing act if you have say a £50K account like I do. Do I trade less frequently but at better prices aka CFDs or do I trade more often but at a lower volume (thereby spreading my risk) but at poorer prices aka spreadbetting ?
The problem going the CFD route too is that ones exposure is going to be that much larger if things go the wrong way and its more likely I'd jump ship because of the heat generated.
If IG Markets didnt have the £10 minimum commission at either end I'd definitely go the CFD route. Tradefair will be opening a CFD exchange in a few months time and I've been invited to beta test it, so it'll be interesting to see what they have to offer. If they arrange it in a similar way to their mother exchange, Betfair, it could be a real alternative to what we have on offer at the moment.
 
Quote from Dr Who:

Sure, I think 5 may be too many to hope for. My own pairs seem to provide me with about 3 pr day on average. But with the average trade lasting about 9 days that would mean 27 pairs or 54 CFDs open at one time maximum. This still means around £100K account.
So, its a balancing act if you have say a £50K account like I do. Do I trade less frequently but at better prices aka CFDs or do I trade more often but at a lower volume (thereby spreading my risk) but at poorer prices aka spreadbetting ?
The problem going the CFD route too is that ones exposure is going to be that much larger if things go the wrong way and its more likely I'd jump ship because of the heat generated.
If IG Markets didnt have the £10 minimum commission at either end I'd definitely go the CFD route. Tradefair will be opening a CFD exchange in a few months time and I've been invited to beta test it, so it'll be interesting to see what they have to offer. If they arrange it in a similar way to their mother exchange, Betfair, it could be a real alternative to what we have on offer at the moment.
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I hear you mate. The costs of dealing in the UK and Europe generally are WAY above trading US stocks.

I trade prop so the deals on offer were a little better. But even then I've had to hassle them for months to get my fees down.

Out of interest, how are you putting your pairs on? Do you just wait for the ratio to look roughly right and then put on the trade, one leg at a time? I've been experimenting a bit and have noticed I can get some fairly wild slippage trading like that.

I've now developed some software to help me automate the process but there is still a lag which leads to slippage, esp in faster mkts.

I only mention all this to say that, if you are going to get picky about your comms (as you should!) then do not neglect execution lag as it can have as big (or bigger) impact on total costs, depending on how you do it....
 
At the moment I'm using their DMA interface which seems to be working OK and I can usually get inside the spread without a problem. Then again, I've only done a few so far. I like to be fairly active so I think I will probably take a slightly less advantageous price in order to trade more pairs and go the spreadbetting route for the moment. Until the new Tradefair exchange starts up and I see what they have to offer. Its horses for courses and I dont think I'm funded well enough at the moment to trade the way I'm happy with going the CFD route.
 
While I'm talking about their DMA interface I was watching a couple of CFDs just after the open and it seemed like there was a bot or two working the spreads when they were wide enough. This is what I do for my main income at the moment but on Betfair markets, so its interesting to see the CFD markets are not immune to the same practice :)
 
Quote from Dr Who:

Sure, I think 5 may be too many to hope for. My own pairs seem to provide me with about 3 pr day on average. But with the average trade lasting about 9 days that would mean 27 pairs or 54 CFDs open at one time maximum. This still means around £100K account.
So, its a balancing act if you have say a £50K account like I do. Do I trade less frequently but at better prices aka CFDs or do I trade more often but at a lower volume (thereby spreading my risk) but at poorer prices aka spreadbetting ?
The problem going the CFD route too is that ones exposure is going to be that much larger if things go the wrong way and its more likely I'd jump ship because of the heat generated.
If IG Markets didnt have the £10 minimum commission at either end I'd definitely go the CFD route. Tradefair will be opening a CFD exchange in a few months time and I've been invited to beta test it, so it'll be interesting to see what they have to offer. If they arrange it in a similar way to their mother exchange, Betfair, it could be a real alternative to what we have on offer at the moment.
More...

27 pairs is still a lot. I mean, who forces you to open that many positions? You will be more than fine with the half of it, trust me.:D Why not going with a real brokerage firm?
 
Closed two pairs;
BDX:BCR @ 0.9031 from 0.9194
MOO:IGE @ 1.2810 from 1.2675, took a loss because they are ETFs on different industry and it seems more like a divergence.
 
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