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  1. #1
    Banned Array
    Join Date
    May 2009
    Thanked 8 Times in 3 Posts

    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
    Standard Member Array
    Join Date
    Jan 2010
    Thanked 0 Times in 0 Posts

    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.

  4. #3
    Diamond Member Array William's Avatar
    Join Date
    Mar 2008
    Ten no Michi
    Thanked 64 Times in 29 Posts

    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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