Spread Trading also know as Pair Trading or Relative Value Arbitrage, is the simultaneous buying and selling of two related securities on the expectation that their relative prices will converge. It a strategy widely employed by Investment Banks, Proprietary Trading Firms and Professional Traders as it offers the potential to deliver better risk adjusted returns than are available with purely directional positions. That is to say, with a spread trade, one does not need to forecast whether the market is going up or down over the coming day, week or month. Instead one looks for an Instrument that is cheap or expensive relative to some other related Instrument. Once identified, the expensive stock or future is sold while the cheap stock or future is bought. Because it is often easier to identify relative value than to predict market direction, spread trading has the potential to deliver more reliable profits. In addition, because spread trading is usually market neutral, unexpected macro-economic events will often times have similar impacts on both long and short positions. In this way risks to macro-economic events can be reduced with spread trading.

At Professional Spread Trading we provide tools to help traders find and exploit relative value trading opportunities. Unlike many facilitators which focus only on correlation analysis, we provide CoIntegration analysis, a methodology derived from econometrics to detect weather the spread relationship is mean reverting historically. Many traders are not aware that two Instruments can be correlated without being CoIntegrated or mean-reverting. To better understand how this is possible, see the article CoIntegration vs Correlation.

We provide tools that integrate with the NinjaTrader platform. Through NinjaTrader, which is free for analysis and back-testing, traders can test spreads for historical mean reversion, chart spreads through time using our proprietary models, and backtest strategies using our open & customizable strategy scripts.

Start a free trial today to see how we can help you take your trading to the next level!

Supported Market Data Providers:

• CQG
• eSignal
• Gain
• Google
• Interactive Brokers
• IQFeed
• Kinetick
• MB Trading
• Patsystems
• PFG
• TD Ameritrade
• Track Data
• TradingTechnologies
• Vision Financial Markets
• Yahoo
• Zen-Fire