Pair Trading Strategy Journal

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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You should look into a prop fiim. 50k would give you 1mm + buying power.
 
PTF sent out a freebie this morning for AYE/GXP. I took it as I do trade pairs now and again and am looking to do more of them. The trade is up nicely so far as AYE is recovering from a beatdown and GXP is doing its usual shuffle around the $15 area.

My question is this: Even though I took this trade and its working, I was ready to discard it because of the recent price action of AYE. Those of you with more experience on this thread, you do see that this is not a normal divergence, no? This seems to be a spread that went way out of whack only because one of the stocks got destroyed.

In general, am I correct to be shy of these types of pair setups?
 
Quote from Midas:

You should look into a prop fiim. 50k would give you 1mm + buying power.
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I tentatively opened an account with IB a few weeks ago but havent yet funded it. Perhaps I'll do that. They seem fairly popular and have a well established API which I like.
 
Quote from Dr Who:

I tentatively opened an account with IB a few weeks ago but havent yet funded it. Perhaps I'll do that. They seem fairly popular and have a well established API which I like.
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From IB WebSite:

"An account must have at least USD 100,000 (or USD equivalent) in Net Liquidation Value to be eligible for a Portfolio Margin account"

With less than 100k i think you have to open a cash account, where you does not have the option to use margin, when trading stocks.

There are plenty of IB users on this forum, correct me if I am wrong, plz
 
Quote from tatankas:

From IB WebSite:

"An account must have at least USD 100,000 (or USD equivalent) in Net Liquidation Value to be eligible for a Portfolio Margin account"

With less than 100k i think you have to open a cash account, where you does not have the option to use margin, when trading stocks.

There are plenty of IB users on this forum, correct me if I am wrong, plz
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What IB calls portfolio margin is the ability to have additional margin, up to 6x. With amounts less than $100,000 you can have regular RegT margin of 2x overnight or 4x intraday. In addition, IB's UI is well suited to pair trading, although you can't place a limit order for pairs (yet). Last, IB treats pair trading very favorably, essentially requiring margin for only the long side, unlike TS where magin requirements are a lot higher. Sorry for the commercial, but I'm a big fan :)
 
Quote from tatankas:

From IB WebSite:

"An account must have at least USD 100,000 (or USD equivalent) in Net Liquidation Value to be eligible for a Portfolio Margin account"

With less than 100k i think you have to open a cash account, where you does not have the option to use margin, when trading stocks.

There are plenty of IB users on this forum, correct me if I am wrong, plz
More...

A reg T margin account and portfolio margin are 2 different things. Portfolio margin provides more than the standard magin. This gives better capitalized traders more leverage.

You should be able to open a reg T margin account with much less than what is require for porfolio margin.

This is my understanding, I do not trade through IB. I am not sure what leverage you can receive via portfolio margin but it should be a good bit more than the old reg T standard.
 
had previous good results with the pairs but been out of it for a wee while after evaporating a lot of profits last May.

this post has inspired me to get back into it :D

am getting into positions with the thought that if they go against me, i will add a couple of layers to them up to the stop.

Long MCD short YUM
long CVX short XOM
long APC - short OXY anywhere under -5 with a 1.3:1 ratio
long T - short VZ
long HCN - short HCP

and a few others. just wanted to see if anyone has any ideas about these as i didn't see them in the 10 or so pages of posts i looked through nor have i been able to succesfully download the PTF.

Thanks so much for any words.
 
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