- Why IFCM
- Market Data
- For Business
Spread Trading also known as Pair Trading is a relatively new trading technology that has become popular among private investors in the mid- 1990s. Currently, spread trading is a popular tool among traders who have discovered it as a smart way to make profit. Spread Trading is a strategy that allows the trader to use anomalies, as well as fairly strong differences between prices of two stocks or baskets, while maintaining relative neutrality towards the market fluctuations.
The basis of the strategy is to identify correlated stocks and use moments when prices converge or diverge. Pair trading helps to smooth price fluctuations and increases the predictability of the market. In other words, it creates a clearer, more predictable range for traders to trade. The task of the trader is to identify the timing of abnormal correlation.
However, most of the existing trading terminals do not have the functional to carry out a serious technical analysis in the framework of spread trading strategy. Generally, the trader has no opportunity to create a chart of a relative combination of assets he is interested in and to analyze it with various technical indicators. A lot of people use MicroSoft EXCEL for this reason, by exporting data and building charts out of the trading platform. The process is quite time-consuming and not very convenient and effective.
Now this problem is solved: traders, working with spread trading strategies are provided with an opportunity to create charts quickly and easily, and to carry out a complete technical analysis of simple and complex combinations of assets. Traders can do this thanks to the unique analytical functionality of GeWorko Method, implemented on the basis of trading terminal NetTradex. GeWorko is a completely new method of market analysis and investment management, it allows to compile portfolios of various assets and compare the value of portfolios with one another, creating a new financial composite instrument PCI - Personal Composite Instrument.
It is possible to create both a quite simple PCI GeWorko, and a very complex one. For example, a trader decided to analyze retrospectively the ratio of values of two American stocks from the same sector (Hewlett-Packard and IBM). It can be reflected through simple PCI GeWorko (see chart).
|PCI Chart: HP / IBM|
Creating a chart takes no more than a minute. It is possible to choose any time frame (in the chart above, the weekly time frame is shown) and apply a wide range of technical indicators. Likewise, it is possible to build a chart of any complex PCI GeWorko very quickly. A complex PCI can theoretically include any number of assets in each of the compared portfolios. Within the portfolio, the user can set a weight for each of the assets, included in the overall portfolio. Most importantly, the program automatically recalculates the values of all the assets in U.S. dollars (if they are traded in other currencies), allowing to adequately compare the assets or portfolios with each other.
It should be also noted that the list of assets, which may be used to create various PCI GeWorko, is quite extensive and includes almost all the segments of financial markets of various countries. Thus, traders who are engaged in pair trading, have a very useful, convenient and effective tool - PCI GeWorko at their disposal.