Two-Leg Entries for Pairs Trading: A Guide to Profitable Spreads & Arbitrage Trading

For example, a trader wants to trade the synthetic pair on futures: ADAUSDT / ETHUSDT. Each asset in the spread is referred to as a leg, resulting in two legs when trading the pair.

The first leg is ADAUSDT, and the second leg is ETHUSDT.

In the Terminal, it is now possible to select a Two-Leg Entry for the Spreads & Arbitrage trading type.

Once the Two-Leg Entry option is selected, a Trader must define the Stop Price of the spread, then place the order.

The Stop Price is the value of the synthetic spread that must be reached to trigger the limit entries. It is calculated based on a comparison of BIDs and ASKs.
There are two conditions that it must fulfill:

This setup ensures, with a high probability (though not 100%), that the actual spread price of the spread the Trader enters at is equal to the Stop Price specified in the Terminal.

Once the Stop Price is reached, the system will place a limit order on each leg (one for each leg).

Example:

If we trade LONG ADAUSDT/ETHUSDT, the first limit order will be placed at the closest BID offer (highlighted in purple in Picture 2.) in the ADAUSDT order book. The second limit order will be placed on the closest ASK offer (highlighted in blue in Picture 2.) in the ETHUSDT order book.

The system then waits until at least one of the limit orders is filled. As soon as one is filled, the other limit order is canceled, and a market order is executed for the remaining leg to lock in the spread price.

The exit from the position works in a similar manner. However, unlike the entry, Take Profit / Stop Loss is used as the Stop Price for the exit.

Note: Using Market Enter / Market Exit actions in the Positions tab will execute market orders.