The Advanced tab of the Pair Setup dialog box contains attributes that define a Pair’s trading behavior, some affect execution quality (i.e., the Spread/slippage) and others that affect hedge quality by restricting or automatically adjusting the trading behavior of the AutoTrade agent. All required fields contain default values, that can be modified, but no fields on the Advanced tab need to be modified in order to set up a trading Pair.

1. Click the Advanced tab.

2. Enter the amount of the dividend to be included with each executed share of the Leg 1 and/or Leg 2 stocks in the Dividend field. If a dividend is not associated with the transaction, enter zero (0).

• This field is only available when Price Differential is selected from the Spread Calc drop-down list box on the General tab.

3. Enter the level of traded volume required for the Leg 1 and/or Leg 2 stocks before corresponding orders can be initiated in the Volume To Open field.

• The Volume To Open requirements specified for both Legs of the Pair must be met before orders can be initiated. Both Legs default to zero (i.e., there is no default volume requirement for either Leg).

4. Enter the minimum change in the spread that is acceptable before triggering a cancel/replace transaction for the initiating order in the Cxl/Rpl Increment field. The value entered for Leg 1 and/or Leg 2 represents the minimum number of ticks, and defaults to 5.

5. Enter the earliest time you want trading to start in military time (i.e., 24-hour format, HH:MM; for example, enter 2:38 P.M. as 14:38), in the Start Time field. Trading will not be restricted, other than by the normal market session hours, if a time is not entered.

6. Enter the time after which you want trading to stop in military time (i.e., 24-hour format, HH:MM; for example, enter 2:38 P.M. as 14:38), in the End Time field. Trading will not be restricted, other than by the normal market session hours, if a time is not entered.

• The Start Time and End Time fields default the earliest start time and the latest end time corresponding to the Leg 1 and Leg 2 symbols/exchanges entered on the General tab.

• The time zone for the Start Time and End Time is based on the Time Zones configuration set through the REDIPlus Application bar’s Menu/Time Zones option.

7. The AutoTrade Method field, which determines the style of trading that is applied by REDIPlus when Auto-trading is enabled, defaults to Limits. REDIPlus calculates the spread differential based on the Limit, Initiate Range, and/or Short Tick Allowance values entered, and then attempts to capture it.

• Additional AutoTrade Methods will be available in future versions of the Pair Setup dialog box.

8. Select the initiation strategy that you want the AutoTrade agent to apply to the Pair from the Strategy drop-down list box. The following strategies are available:

• Standard - permits the greatest variety of potential initiate scenarios by employing a balanced tracking spread (spread-to-watch) and allowing the user a broad array of customization parameters. In Standard mode, the AutoTrade agent uses the B-B/A-A spreads (initiate Leg 1/2, respectively) for Setup, and the inverse spreads for Unwind. This design balances early initiation (display of interest) with minimized hedge risk (an increased likelihood of balance order execution).

• Passive - the Passive strategy will be the first to initiate and the last to execute of the three alternate strategies (Passive, Moderate, Aggressive). By tracking A-B for Setup, and the inverse for Unwind, a premium is put on display of interest (early initiation) over immediacy of execution and hedge risk mitigation.

• Moderate - less predictable with regard to when it initiates (tracking the lesser of B-B and A-A for Setup, and the greater for Unwind); it disables the Initiate Range parameter and, therefore, will typically initiate later than either the Standard or Passive strategies. By design, it emphasizes improved execution quality (lower hedge risk) by increasing the likelihood that the spread Limit will be captured when the trade is finally initiated.

• Aggressive - tracks B-A for Setup, and the inverse for Unwind, and, as with the Moderate strategy, disables the Initiate Range parameter. By initiating latest of the strategies, Aggressive maximizes the speed and likelihood of execution at the spread Limit (minimizing hedge risk).

9. Enter the maximum number of the initiating Leg’s orders that can be open at one time in the Max # Open Orders field.

• The Max # of Open Orders may be restricted to 1 in some markets.

10. Enter the difference from the Setup and/or Unwind spread Limit values (General tab) that the spread must be in order for the Spread Trader agent to initiate trading in the Initiate Range field. Once the spread value is within the range you establish, the agent will initiate the submission of orders away from the current market.

• If you are setting up a Price Differential trading Pair, the spread Limit value you entered should be expressed as a currency amount; if you are setting up a Ratio-based trading Pair, the spread Limit value should be expressed as a percentage. However, the Initiate Range value is always expressed as a currency amount.

The application of an Initiate Range to the spread Limit values benefits you in different ways:

• the difference from the spread Limit values enables you to establish your position in the queue, and thus increase your probability of being filled at a given price.

• enables you to show size (interest in the market).

• The Initiate Range field is only available when Passive or Standard has been selected from the Strategy drop-down list box.

11. If you want to be more aggressive with your Sell Short order submissions, you can adjust the initiating Limit price by the number of ticks (i.e., the minimum price variation) you specify in the Short Tick Allowance field.

12. To reduce your risk of being out of hedge (i.e., ensure the hedge quality of your Pair), you can specify the initiating Leg’s maximum Order Quantity/Value as a percentage of the published size of the balance Leg’s stock quote (liquidity) in the Liquidity Constraint (%) drop-down combo box. Based on the percentage you enter/select, the Order Quantity/Value submitted may be constrained (scaled down).

• The default value is Off, indicating that no Liquidity Constraint calculation will be applied.

• The Order Quantity/Value submitted can never exceed the initiating Leg’s original Order Quantity/Value.

Examples of the application of the Liquidity Constraint percentage are provided in the table below. For each example, the following is assumed:

• Order Quantity:  1,000

• Hedge Ratio:  1 (a 1 to 1 relationship between the initiating and balance Legs’ order quantity).

• Hedge Type:  Quantity

• A Hedge Ratio other than 1 would affect the initiating Leg’s Order Quantity/Value after the Liquidity Constraint (%) is applied. If, in the first example, the Hedge Ratio were 1.5 (i.e., the Order Quantity of the initiating Leg must be 1.5 times that of the balance Leg), the Initiating Leg Order Quantity (500) would be multiplied by the Hedge Ratio (1.5), and the Initiating Leg Order Quantity submitted would be 750 (500 * 1.5 = 750).

13. Enter the minimum number of seconds that must elapse between the submission of a balance Leg order and the submission of the next initiating Leg order in the Order Time Interval field.

• The Order Time Interval field defaults to a 10-second interval; the minimum interval is 3 seconds.

14. Select the type of Buy balance Leg orders you want to submit from the Buy Type drop-down list box. Values include:

• Limit bid - submits a Buy Limit order at the Bid.

• Limit offer - submits a Buy Limit order at the Ask.

• Limit spread - submits a Buy Limit order that will lock in the spread differential you want to capture as a result of a trade based on the value you entered in the Setup or Unwind Limit field of the General tab.

• Selecting Limit spread may result in your orders moving away from the market.

• Market - submits a Buy Market order.

15. Select the number of ticks (i.e., the minimum price variation) above or below the Limit price (determined by the Buy Type you selected) that you want to submit your Buy Limit order) from the Buy Offset drop-down list box.

16. Select the type of Sell balance Leg orders you want to submit from the Sell Type drop-down list box. Values include:

• Limit bid - submits a Sell Limit order at the Bid.

• Limit offer - submits a Sell Limit order at the Ask.

• Limit spread - submits a Sell Limit order that will lock in the spread differential you want to capture as a result of a trade based on the value you entered in the Setup or Unwind Limit field of the General tab.

• Selecting Limit spread may result in your orders moving away from the market.

• Market - submits a Sell Market order.

17. Select the number of ticks (i.e., the minimum price variation) above or below the Limit price (determined by the Sell Type you selected) that you want to submit your Buy Limit order) from the Sell Offset drop-down list box.

18. The Prx Improvement Increment field enables you to take advantage (i.e., be more aggressive) when market prices corresponding to the balance Leg of a Pair move in your favor, increasing the spread value you can capture. Enter the price differential increment [the difference between the calculated Limit price and the market price (Bid or Ask, depending on which Leg is the balance Leg)] at which you want to increase the balance shares bought/sold over the standard balance Leg share amount. Each time the price differential increment is met (i.e., each time the market price improves that increment from the calculated Limit price), the balance shares will be increased by the factor specified in the Prx Improvement Factor field; see the Prx Improvement Factor field for more information.

• The Prx Improvement Increment must be a positive number expressed in terms of ticks (i.e., the minimum price variation).

19. Enter the factor by which the balance Leg order quantity should be increased for each Prx Improvement Increment that is met in the Prx Improvement Factor field; see the Prx Improvement Increment field for more information.

20. When you have completed the Advanced tab, you can click [Submit] to save the Pair and close the Pair Setup dialog box. Optionally, you can return to the General tab to further configure the Pair.