Author Topic: Question on how to increase pair trading position sizes.  (Read 5118 times)

steven fastuca

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Question on how to increase pair trading position sizes.
« on: March 09, 2015, 11:55:35 am »
I am simulating a $100,000 account and the PTL trader is only allocating $2,000 to each side of the pair. Where in the settings can I increase the size trades to 10,000k?

thanks!!

A

admin

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Re: Question on how to increase pair trading position sizes.
« Reply #1 on: March 09, 2015, 03:12:11 pm »
It should work automatically based on your portfolio settings (number of slots available and account allocation %) and leverage set for your instruments.

Please double check those and if you think it does not work correctly, create a ticket in helpdesk.

Also please check if PTLTrader indicates correct account stats (in Account tab).

steven fastuca

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Re: Question on how to increase pair trading position sizes.
« Reply #2 on: March 12, 2015, 09:41:40 am »
ok so I reduced slots available and also increased slot usage from 2 to 4. will that increase the $$ amount used for each trade?

if I change the stock margin % will that do anything?


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Re: Question on how to increase pair trading position sizes.
« Reply #3 on: March 12, 2015, 01:58:04 pm »
Please read the Money Management section at this page:
https://wiki.pairtradinglab.com/wiki/Pair_Trading_Lab_Portfolios

And make sure you perfectly understand how it works - look especially at examples!

The margin % field should match the (overnight) margin required by your broker to maintain your position (in most accounts it is 50% for stocks) and you should never to use this field to fine tune money management rules.

The best idea will be if you describe your settings and situation and tell me how it differs from the goal you want to accomplish. I cannot help you without this information.

steven fastuca

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Re: Question on how to increase pair trading position sizes.
« Reply #4 on: March 12, 2015, 02:29:43 pm »
I have 50 pairs in my portfolio, I have a 100k interactive brokers account.

I have 4 :1 reg T margin.

I orignally had settings on 50 total slots, with 1 slot reserved for each pair, and 50% margin for each.

then it was only trading about $1000 per side for $2000 total per pair.

Since i want to use most of my cash I wanted to up the allocations so that even if I only had 30 pairs on i would use almost 100% of my cash

I then changed it to 25% margin for each stock, upped the slots to 2 for each and upped the total slots to 80. and now its trading about 5k a pair or $10,000 total.

I want to increase this even more and maybe have it trade 20,000k per side.

what should I do first increase slot occupation to 4?

Thanks for the help.

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Re: Question on how to increase pair trading position sizes.
« Reply #5 on: March 12, 2015, 04:23:06 pm »
I understand now.

The important decision is how many pairs would you like to have open at the same time. I would recommend to have 10 pairs open at the same time. This is _not_ implicitly related to how many pairs you have in total in your portfolio.

This means, you set max slots to 10. It will allocate 1/10 of the account to each pair opened (so 10k per pair, 5k per leg). Because you have Reg-T margin, you only need 50% of the position in margin (you effectively "control " 200k of capital). So if you keep your margin at 50, it will actually open positions twice as big = 20k per pair (10k per leg) - because of the trading on margin.

I would set your strategies just to use one single slot. If you have pairs you trust more than others, boost it to higher value (1.5 or 2) for them.

PTL Trader will now trade 50 pairs, but at one single time you can be only in position in 10 of them. Which is OK (we can call it "overbooking", because you are not always in position for all pairs). This way you can get the most from your capital. When your account is fully saturated (10 slots used), it will ignore entry signals until some slots are free again.

I would not trade less than 10 pairs at the same time, because of the risk/diversification. In this setup, if one pair suffers a big loss, it won't affect your whole portfolio too much.

About this:
Quote
I have 4 :1 reg T margin.
Beware - Reg-T margin has 25% margin requirement for intraday trading only. For overnight positions, it increases to 50%. So you have to set the margin to 50 anyway.