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.
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.
See this order type: https://guides.interactivebrokers.com/tws/usersguidebook/ordertypes/limit___market.htm You can designate one leg of the pair to execute first (presumable the euro leg in your case).
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).
lol, so you trade with market orders and get screwed on wide quotes ? theres a knucklehead, but not me