Pair trading brokers

Discussion in 'Index Futures' started by calhawk01, Mar 2, 2015.

  1. Hi

    Anyone know a pair trading broker? I want to trade the spread between highly correlated (correlation > .98) instruments. My issue is that I cannot meet the overnight margin requirements. The current overnight margin requirements on, for example, NQ and Emini combined are over 10k. However, the underlying risk on this strategy is very much limited. The exchanges even have low margin requirements for pair trading strategies. Any broker out there that does the same??

    Thanks
     
  2. bourseindia likes this.
  3. http://www.cmegroup.com/trading/equity-index/files/SP500_DJIA_Spreads_Final.pdf

     
  4. Trader13

    Trader13

    A couple things don't sound right. Where did you get the overnight margin of 10K for that spread? It should be considerably lower. Who is your current futures broker that is requiring this margin?

    Referring to your first post, keep in mind that NQ is essentially a proxy for the tech sector (Nasdaq 100) and ES represents the broad market (S&P 500). These two can diverge considerably (in magnitude of price movement) even though they are highly correlated (move in same direction). So this "pair" has more risk than you suggest.
     
    Last edited: Mar 2, 2015
  5. rmorse

    rmorse Sponsor

  6. Thanks for sharing, this my first post and i got the proper and nice information.
     
  7. Correct, they can diverge significantly, and keep diverging. I have many variable at play that try to quantify the divergence.

    10k = overnight margin of ES (5k) and overnight margin of NQ (4k). This margin is at Amp trading. They don't offer "special" spread margins for pair trading it seems. Even though the margins are set by the exchange rather than the broker! So either the people at AMP are not knowledgeable at the subject or they chooce to not offer spread margins. This is why I created this post to find brokers that do.
     

  8. I got the email reply from Clearing Risk Management @ CME.

    "Hello,

    Assuming that you are referring to the March 2015 Future contracts for both products (ES and NQ). initial combined margin would be 4543.00

    Best,

    Clearing Risk Management"
     
  9. Trader13

    Trader13

    Have you contacted Amp to ask them about the spread margin? They might have some particular requirement, like a certain ratio, or that you have to enter the order as a spread and not leg it.
     
  10. I did, over four times. Chat and via email. On email they said no, and i told them about CME rule, and they stopped replying to my email. And chat said, they dont offer spread margins.
     
    #10     Mar 5, 2015