Neutral and pairs trading

Discussion in 'Trading' started by fanews, May 12, 2011.

  1. fanews

    fanews

    Neutral and pairs trading.

    What is the experience with these two types of trading.

    Market makers and pros tend to use neutral and pairs trading.

    non-directional trades.

    The game is rigged against directional traders.

    Daytrading momentum and scalping is the only way to make money honestly in this market. pump and dump traders and ponzi scheme operators is how crooked hedge funds and some crooked market makers make money. and in your face fraud.

    And the minimum $25,000 PDT by SEC is to block small pikers from stealing from the market makers. most people don't have $25,000 to daytrade so they go to prop firms and pay $350/month in fees to have privillege to gamble.

    Which imo wall street operators like goldman sachs is full of bullshit.
     
  2. +1
     
  3. there is no such thing as neutral, unless you are talking about putting your silver bars on the mattress
     
  4. bone

    bone ET Sponsor

    It is directional in the sense that you are betting that the price differential between two (or more) highly correlated instruments either converges or diverges in your favor.

    The traditional method is to trade a pair for mean reversion back to what is considered to be long term mean value. It has been said that a large percentage of the Bright traders in Vegas and Vancouver are pairs traders.

    Stat arb involves performing this task in an automated setting and in very high frequencies.

    It is a neutral strategy in the sense that the overall direction of the broad market should have no bearing on the performance of the spread.

    If you look at the composition of equity-focused hedge funds, the majority of them are listed as 'relative value' in terms of strategy. Of course, pairs and spreads are relative value strategies.
     
  5. Arnie

    Arnie

    I've seen more traders blow up with pairs than any other strat.
     
  6. bone

    bone ET Sponsor

    If you trade them for mean reversion I agree with you completely, Arnie.

     
  7. fanews

    fanews

    neutral trading is the only way to daytrade for hedge funds with over 10 million or even 1 million in portfolio. even a small $100,000 who daytrades would use neutral trading cause the market is too thin to trade directional for institutions.

    directional trading is 'too risky' for prop desk or hedge funds and due to their size cannot 'trade' direction intraday or don't want to trade directional trading.

    props and hedge funds and banks only neutral trade and don't directional trade in anything

    Do you know what neutral trading and pairs trading mean?

    It's quite advance stuff. many quants use computers to trade that way.

     
  8. pretty lame post.

    for less than 3000 shares of AAPL you get 1 million in buying power on the line.

    to say that hedge funds can't or don't daytrade , might be the dumbest comment seen here in months (but not years) You're not related to Brown are you?
     
  9. bone

    bone ET Sponsor

    I took on a client three months ago who is in his early 40's, and was a very successful S&P pit trader in Chicago who wanted to transition to the screen. One month ago, he ordered the pro Bloomberg terminal for his home office. He wants to install my custom study expressions into the Bloomberg charting package, and two Bloomberg technical reps from Manhattan fly into O'Hare and take a limo ride into the city to help him do it.

    My client treats them very well, and during the course of the day's events, queries them about their clients; to wit their response is along the lines of the typical HF PM and Bank Desk trader in Manhattan or Connecticut.

    The next logical question is along the lines of strategy, and the techie's response is essentially that 'well over 90% of them are trading some sort of spreading relative value strategy. If it's a vanilla or exotic arbitrage, or market-making based upon a relationship, pairs and baskets, automated lead-lag strategy, or relative value portfolio composition, in essence it is almost universally some sort of correlated spread relationship'. Absolutely true story.
     
  10. +1

    because when wrong, it is wrong x 2:)
     
    #10     May 13, 2011