The one that got away ... partially
A look at one trade from this week's pairs watchlist.
A pdf document that gives an overview of relative value analysis:
https://fasttrading.ck.page/edgetrader
A YouTube video that gives a common sense explanation :
• Relative Value Trading Explained
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A couple of notes:
Pricing convention: The pair in this video is OXM_PLCE with a ratio of .99. So at any point in time the price of the pair is OXM - (.99 * PLCE). With that expression we can chart the price of the pair exactly like any other financial product. All of this is explained in the pdf mentioned above. Note that the price can be positive or negative.
Use of capital: At Interactive Brokers, a stock position can have a 5 to 1 leverage. This trade had approximately $10,000 on each leg. So $4,000 of capital was required (20% of $20,000). We held the position for one day and had a return of $500.
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