View source for Pair Trading Lab Portfolios

== Money Management ==
Pair strategies grouped in a portfolio share same management rules. You can imagine the Portfolio is actually a manager and all strategies have to ask the manager if they can open a position and how big the position should be.

The money management used in our software is '''slot based'''. That means, you configure (per portfolio) how many slots are there. Typical value is in range in 5-15. So if you say, for instance, my portfolio has 5 slots available, you say there can be max 5 standard pair positions opened at the same time. So it does not matter, how many active strategies you have in your portfolio - the system guarantees, there will '''never be''' more than 5 slots used = max 5 pair opened at the same time. If all slots are used, it means you already have 5 pairs opened and your account margin is used up to the maximum safe limit. In this situation, no new pairs are opened until some other position is closed.

Why we have slots instead of just saying how many pairs can be opened at the same time? Slots make it more flexible. Imagine situation, where you have pairs with very nice recent profit experience, on the other hand you have some pairs which are not so good recently. With slots, you can say - the first pair strategy works very well, so let's boost it and give it more weight - for instance, you can say it will occupy two slots instead of one. On the other hand, for not-so-good pairs, you can assign only half of the slot to it, until it gets better.

Actually, '''setting the slot occupation for pair strategy is equivalent to adjusting the money management weight'''. You can change the slot occupation in range from 0.1 (10% of the slot) to 2.0 (200% of the slot). Default occupation is 1, which means 1 slot = 1 pair.

Let's look at some example. Imagine a portfolio with 5 slots configured, running on account having balance of 10,000 USD. Then the situation might look like this:
[[File:Slot-example.png|center]]
One slot in this case represents account balance of 10000/5 = 2000 USD.
* first slot is used by opened KO-PEP position, slot occupation is 1.0
** with margin of 50%, 2000 USD is allocated to KO position, 2000 USD is allocated to PEP position
* second slot is used by MA-V position, slot occupation is 1.0
** with margin of 50%, 2000 USD is allocated to MA position, 2000 USD is allocated to V position
* third and fourth slot is used by MCHP-LLTC position, slot occupation is boosted to 2.0 (two slots are used for this position)
** with margin of 50%, 4000 USD is allocated to MCHP position, 4000 USD is allocated to LLTC position
* a half of the last slot is used by F-GM position, slot occupation is lowered to 0.5 (only a half of the slot is used for this position)
** with margin of 50%, 1000 USD is allocated to F position, 1000 USD is allocated to GM position
* another half of the last slot is still free - whenever an entry signal fires for any pair strategy with occupation <=0.5 (so it would fit the space), position can be opened immediately

Remark: In case there is no free slot space to open new positions, all strategies wait for the free space. When new slot space becomes available, new pair positions are opened in FIFO (first-in-first-out) manner.
=== Account Allocation ===
By default, 100% of your account is allocated to the portfolio bound to it. However, you can change this either in Portfolio Manager or PTL Trader and set it to lower value, if you want. For instance, you can assign only 50% of your account to the pair trading portfolio and use the rest of the account for another strategies. So if you set it to e.g. 50%, all slots of the portfolio will automatically scale down proportionally.

If you change this parameter for portfolio already being traded, the value will apply for new positions only.

=== Best Practices ===
These are some useful advises how to setup the money management:
* you should never assign more than 25% of your account to a single pair strategy; best recommended is <= 10%
* it is not a good idea to assign less than 1500 USD to a single pair strategy; commissions will eat significant part of your profit
Rules above imply some recommendations how many slots to use for which account sized (assuming Req-T margin used, considering you have at least 15 pairs in your portfolio):
* <10,000 USD - don't trade pairs at all, it is not worth it
* 10,000 - use 5 slots, consider it still quite risky (20% per strategy is still quite high)
* 15,000 - use 7-8 slots
* 20,000 - 9-10 slots
* 25,000 - 10-13 slots
* 30,000 - 10-15 slots
* 100,000 - 10-?? slots (depends how many pairs do you trade)

Remark: most pair strategies are in position only in about 30-45 percent of the time. So it is usually a good idea to have slightly more pair strategies than slots in your portfolio, so your slot space (and therefore account margin) is used more effectively over the time.