Dual-Listed Stock Arbitrage

Entry Logic

• Exact Entry Trigger: A price discrepancy develops between the same stock listed on two different exchanges (e.g., a stock listed on both the Toronto Stock Exchange and the NYSE).
• Confirmation: The discrepancy, after accounting for the currency exchange rate, is larger than all transaction costs.
• Timeframe: Real-time.
• Location Context: Not applicable.
• Market Condition: Any.

Exit Logic

• Profit Target(s): The convergence of the two prices.
• Scaling Out: Not applicable.
• Trailing Stop: Not applicable.
• Signal Failure: The price gap widens.
• Opposite Signal: Not applicable.
• Time Expiration: Intraday.
• Momentum Loss: Not applicable.

Stop Loss Structure

• Hard Stop: A predefined maximum loss if the gap widens unexpectedly.
• Soft Stop: Not applicable.
• Maximum Dollar Loss: Kept very small per trade.
• Maximum Percent Loss: Dependent on the arbitrage spread.
• Structural Stop: Not applicable.

Risk Management Framework

• Risk Per Trade: This is a high-frequency strategy; risk is managed by the system's logic.
• Maximum Daily Loss: A strict, automated daily loss limit.
• Maximum Weekly Loss: A strict, automated weekly loss limit.
• Maximum Drawdown: Very low.
• R:R Requirement: Profit must exceed costs.

Position Sizing Model

• Sizing Approach: Large sizes are used to capitalize on tiny spreads.
• Volatility Adjustment: The system may pause during extreme, abnormal volatility.
• Conviction Sizing: Not applicable.
• Scaling In: Not applicable.
• Scaling Out: Not applicable.

Trade Filtering

• Market Conditions to Avoid: Market halts or periods of extreme stress where liquidity dries up.
• Specific Setups: Focus on the most liquid dual-listed stocks.
• Instrument Requirements: Stocks dual-listed on two major, liquid exchanges.
• Time Restrictions: During the hours when both exchanges are open.
• Chop/News Avoidance: Not a factor.

Context Framework

• Trend Direction: Not applicable.
• VWAP Relationship: Not applicable.
• MA Relationship: Not applicable.
• Range Location: Not applicable.
• Higher TF Alignment: Not applicable.

Trade Management Rules

• Breakeven: Not applicable.
• Scale Out: Not applicable.
• Add Size: Not applicable.
• Fast vs Slow Moves: The arbitrage closes quickly.

Time Rules

• Optimal Window: The trading session overlap.
• Times to Avoid: When one of the exchanges is closed.
• Session Notes: Requires co-located servers and direct market access for effective execution.

Setup Classification

• A+ Criteria: A significant, risk-free (after costs) arbitrage opportunity.
• A Criteria: A standard, small arbitrage opportunity.
• B Criteria: A borderline opportunity where costs may eat up the profit.
• C Criteria: Illiquid stocks.

Market Selection Criteria

• Instruments: Dual-listed common stocks.
• Volume/Liquidity: Extremely high liquidity is required on both exchanges.
• Volatility: Not a primary factor.

Statistical Edge Metrics

• Expected Win Rate: Extremely high (>95%).
• Average Win Size: Extremely small.
• Average Loss Size: Extremely small.
• Profit Factor: Very high, but dependent on technology.
• Expectancy: Positive, but requires significant scale and sophisticated infrastructure.

Failure Conditions

• Market Conditions: A sudden, massive currency swing or a trading halt on one exchange.
• Specific Scenarios: Execution latency. If you are not the fastest, you will lose.

Psychological Rules

• Mental Discipline: This is a machine-led strategy. Human emotion should not be a factor.

Advanced Components

• Market Regime Detection: Not applicable.
• Filters: An automated trading system is not just advanced, it's mandatory.
• Correlation: The trade is the correlation.
• MTF Alignment: Not applicable.

Location

• Where Strongest: In highly liquid stocks with listings on exchanges in different time zones.
• Where Weakest: In illiquid stocks or with a slow execution platform.