Spread Trading Execution: Price-Level Order Management
1. Introduction In spread trading, the central challenge is often not deciding what to trade, but executing the trade. A spread position requires simultaneous entry into two legs — buying one contract and selling another — and any failure to fill both legs at the intended prices exposes the trader to leg-out risk: an unwanted directional exposure on the unfilled leg. This article analyzes a price-level order management framework for spread execution. The approach is parameterized by fixed trigger prices for each direction, combined with time-based filtering and algorithmic lifecycle management. While simple in specification, the design reveals important principles about execution risk and state management in multi-leg trading. ...