The right IB Order Type for arbitrage attempt

Discussion in 'Order Execution' started by delta_1, Apr 10, 2022.

  1. delta_1


    Hi guys,

    I am trying an arbitrage pairs trade. Long/short the stock and its ADR. Ironically the stock is less at it’s home exchange in Europe than the ADR in the US.

    The ADR leg works fine but closing/opening the equivalent leg in the illiquid stock in Europe crushed me last time. The bid/ask stayed the same after entering a sell order at the bid yet my order wasn’t executed. I used simple limit orders. After roughly 30 sec the bid moved against me several times and I had to chase it until the profitability was gone.

    Unfortunately lots of those beautiful IB order types are only meant for the US markets.

    Which order type would you suggest for a pairs trade where the “difficult” leg is in Europe?

    Are IBs Third Party Algos meant for US exchanges or worldwide?

    “Jefferies Pairs - Risk Arb” sounds good – does anybody have experience with this one?

    Thanks a bunch.
  2. JamesJ


    Some of those illiquid stocks are only traded in market maker kind of exchanges (Makler in Germany) such as Frankfurt FWB and Stuttgart SWB.
    The bid/ask you see is only indicative and sometimes not up to date, they update the quote when a matching order is entered using ADR or similar prices from more liquid market place.

    IBIS (XETRA) is different, all orders are real and executable, not indicative.

    So my guess is there is no arbitrage possible, no matter what kind of order.
    cvds16 and terzioglu like this.
  3. JackMorgan


  4. JackMorgan


    Simple answer, if its possible to do the arb at all, is do the 'hard' side first .

    Obvious , no ?
  5. ha, you’re suggesting the exact same thing, knucklehead. I’ve used that order type to manage that specific situation for tens of thousands of pairs trades. It works (although I suspect JamesJ is correct).
  6. JackMorgan


    lol, so you trade with market orders and get screwed on wide quotes ? theres a knucklehead, but not me
  7. Yep, I keep screwing myself by locking in profitable arb trades.