Spread Trading Strategies

Quote from running_bare:

Do you need an autospreader to trade exchange spreads (listed on eg NYMEX)?

What about inter-exchange spreads (NYMEX vs ICE)?
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No on exchange spreads. That's just a traditional order ticket that fills multiple legs that are matched internally at the exchange. About 75% of my clients do very well position trading exchange supported spreads and they do not manually leg spread positions generally speaking.

There are times when they want to leg an intramarket or synthetic spread combiniation like DJ EuroStoxx 50 vs CAC or ES vs NQ for example. They will typically go to market for each leg manually because they are position trading for bigger chunks of the trading range and the slippage, including paying retail rates, is acceptable.
 
I think the idea of rapidly flipping spread positions intraday using automation - especially with a non-member exchange rate structure, makes very little sense for most traders.
 
Quote from bone:

I think the idea of rapidly flipping spread positions intraday using automation - especially with a non-member exchange rate structure, makes very little sense for most traders.
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The non-member rate structure is certainly a barrier to executing a profitable intra-day spreading strategy (automated or not). However.......it's a great strategy if the barriers to entry can be surpassed!
 
Quote from CoolTraderDude:

Both of them [stocks] are in the same industry and sector and they're large companies.

But unless I'm missing something this trade isn't really going his way and he's looking to average in another position...

Looking forward to seeing what happens next...
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CVX Short
XOM Long

The trade really DID go my way in every sense. Typical to my trades, what appears to be unfavorable progress from the outset is because I open them with momentum against them. It's just the nature of the beast to my trades, and the advantage of the beast in my favor, namely it frequently allows me to add a second layer as was the case with this one. These additional layers are where the bigger gains are realized as illustrated by the link below, and I look forward to this evolution in my trades as the best thing that can happen.......the adding of additional layers.

And by the way, with reference to the quote above, adding layers is not for the purpose of "averaging in" as I have explained a number of times on Elite Trader. Pairs traders understand this.

This chart shows the quality of trade advisories, chiefly the inception of the trade and adding layer #2 to it.

http://www.elitetrader.com/vb/showthread.php?s=&postid=3774761#post3774761
 
Here is a swat at trading a pair in different industries. Note the very important Point #6 below explaining the seriousness of this trade.

AET Short ...... Insurance company with 3 million shares / day traded.
R Long ....... Rental trucking company with 1/2 million shares / day traded.

Two posts (Chart 1 and Chart 2, respectively)
http://www.elitetrader.com/vb/showthread.php?s=&postid=3784777#post3784777

The approach is to accumulate very small lots of shares over time (multiple layers) as position moves unfavorably, and be willing to hold for very many months as needed.

Trade (including mulitiple layers) can close much earlier should a significantly favorable move in position occur.

Points:
1. This pair was selectively chosen for correlation. Caveats: It currently is not at an optimal spread between the Short and Long legs relative to the multiple months (even years) of history I typically demand for pairs. Very long history which I put less weight on for significance, nevertheless includes times of even significantly wider spreads which points to a small possibility of an aggregate, negative return.
2. Whether very long term hold or relatively short term hold, the expectation is for a gain meaningfully net of commissions and shrinkage.
3. An accumulation over time of shares in a long term hold scenario has expectation that in absolute terms, a sizable gain will be had but potentially with a humbled, annualized return (accounting for time in a trade) that an otherwise average pair trader typically enjoys.
4. "Trading of layers" (opening and closing them) over time would be a possibility, but constraints on this trader's time currently will probably not allow this. Historically, though, trading of layers has been overall gratifying.
5. By "being in the trade" this is an acid test to take the experiment seriously and to maintain the discipline over time it legitimately deserves.
6. The measure of success in this trade can point to the viability of--or lack thereof--trading pairs with stocks of disparate sectors and/or industries comprising the Long and Short components of a pair. Only a series of such trades can allow for some statistically meaningful conclusion. The value of such enterprise is to determine if the population of tradable pairs can and should be expanded when carefully selected.... at least to the extent of this trader's style of pair trading, capability for selection, and extent of trading talent.

Two posts (Chart 1 and Chart 2, respectively)
http://www.elitetrader.com/vb/showthread.php?s=&postid=3784777#post3784777
 
It was mentioned that CTS T4 licensing is available on per-trade commission basis. FWIW AMP Futures offers X-Trader Pro on similar conditions as well as usual monthly subscription.
 
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