Bank of America Merrill Lynch (BAML) has added an adaptable pairs strategy to its suite of European algorithmic trading products.
The algo is available as part of the platform that hosts BAML's other algo trading strategies, which enables clients to take advantage of the company's liquidity-seeking smart order router, low-latency infrastructure and internal liquidity pool.
A pairs trade is a combination of a buy and a sell order designed to execute when a user-specified relationship between prices holds true. The price relationship is generally expressed in terms of a ratio or a spread.
The strategy's four operating modes – spread, inverse spread, ratio and inverse ratio – have parameters designed to allow traders to customise its execution behaviour. These include formula entry, control over child order size and both passive and aggressive order book tactics.
“Over the past year we have seen global interest in pairs trading grow significantly,” said Ashok Krishnan, head of EMEA execution services at BAML, adding that the firm has initiated a global project to roll out pairs strategies in each region. The rollout began in the US last year and the firm's European technology team has since been developing the platform to handle cross-currency trading.
BAML's existing pairs trading algo was added to RealTick, the global cross-asset execution management system owned by trading technology provider BNY ConvergEx,, in September 2010.
Meanwhile agency broker and technology provider ITG recently launched its own pairs trading algo, Hedge Pro, in November 2010.