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  1. #1
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    position sizing for statistical arbitrage.

    Hi all,

    Ok trying to put this simply,

    When trading two pairs together eg buy eurusd sell gbpusd to profit from the gap between them when overlayed, how do I work position sizes out so that which ever way they go, coming together will result in a profit.

    Hope stat arb experts can help

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  3. #2
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    Re: HELP ME!!!!!!!! position sizing for statistical arbitrage.

    In this case I would suggest trading options on currency futures. You can work out the hedge portion while only trading 1 contract per direction.

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    Re: position sizing for statistical arbitrage.

    You can't.

    If you use perfect position sizing on perfect arbitrage correlation, you won't make any profit, coz it will always result in zero, not matter where the market moves. In fact, you will be in loss, bcoz of the spreads.

    If one pair is moving faster, the lot should be smaller. Thus, it should be around zero.

    The purpose of arbitrage is not to erase risk, but to decrease risk.

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