How to Trade a Pair on Interactive Brokers (IBKR)

Quick Answer

To trade a pair on IBKR: (1) Use a Margin account with short selling enabled, (2) In Trader Workstation (TWS) or Client Portal, check that the stock you plan to short has borrowable shares, (3) Place a BUY order for the undervalued leg, (4) Place a SELL order for the overvalued leg (IBKR treats selling more than you own as a short), (5) Monitor the spread and when it reverts, sell the long and buy to cover the short. IBKR is well-suited for pairs trading due to low commissions and strong short availability.

Why Use Interactive Brokers for Pairs Trading?

Interactive Brokers (IBKR) is a natural fit for pairs trading: low commissions, broad access to borrowable shares for shorting, margin accounts with competitive rates, and professional tools (TWS and Client Portal). Once you have a pair idea—e.g. from Pair Parade's screener—you can execute both legs on IBKR.

Low costs: Commission structure favors frequent, smaller trades.
Short availability: Large inventory of lendable stocks and clear visibility into borrow fees.
Margin: Margin accounts support both long and short positions simultaneously.
Platforms: Trader Workstation (TWS) and Client Portal both support equity orders and short selling.

Step 1: Prerequisites

Margin account: Pairs trading requires going long one stock and short the other. A Margin account (not Cash) is required for short selling. Ensure your account is approved for margin and short selling.
Buying power: You need enough buying power for the long leg and margin/collateral for the short leg. IBKR will show available buying power and margin requirements in TWS or Client Portal.
Know your pair: Decide which stock to buy (typically the one that has underperformed relative to the spread) and which to short (the one that has outperformed). Use Pair Parade's screener and z-score logic to identify entries.

Step 2: Open Trader Workstation (TWS) or Client Portal

Trader Workstation (TWS): Desktop application; full order entry, watchlists, and short-selling columns.
Client Portal (web): Browser-based; sufficient for placing and managing equity and short orders.

For first-time pair traders, TWS is useful because you can add columns such as "Shortable Shares" and "Fee Rate" to see borrow availability and cost before placing the short leg.

Step 3: Check Short Availability for the Short Leg

Before placing the short leg, confirm that IBKR can lend you shares. If shares are hard to borrow, you may get a buy-in or high fees.

In TWS:

Add the symbol to a watchlist or use the symbol lookup.
Right-click the column header → Configure → under "Short Selling" add columns such as Shortable Shares, Fee Rate, and Utilization.
Ensure Shortable Shares is sufficient for the size you plan to short, and that the Fee Rate is acceptable for your holding period.

In Client Portal:

Use the Short Stock Availability tool (search in the portal) to check borrow availability and fee for the symbol you intend to short.

Step 4: Place the Long Leg (Buy the Undervalued Stock)

Enter a standard buy order for the stock you are going long:

Open an order ticket for the symbol (e.g. from watchlist or search).
Action: BUY.
Quantity: number of shares (keep equal share count or dollar-neutral ratio as per your strategy).
Order type: Market or Limit, depending on your preference. Limit can help control fill price.
Submit the order and ensure it is filled.

You now have a long position in the first leg of the pair.

Step 5: Place the Short Leg (Sell Short the Overvalued Stock)

On IBKR, you short by selling a stock you do not own:

Open an order ticket for the second symbol (the one you want to short).
Action: SELL (do not select "Buy to Cover"—that is for closing a short).
Quantity: same number of shares (or your chosen ratio) as the long leg.
Order type: Market or Limit. Submit the order.
IBKR will open a short position when the sell order executes (you are selling shares you don’t own).

Note: You cannot hold both a long and a short position in the same symbol at once. For a pair trade, the long and short are in different stocks.

Step 6: Monitor the Spread and Close the Pair

While the trade is open:

Track the spread or z-score (e.g. in Pair Parade or your own sheet). When it reverts toward the mean, plan to close.
Watch for corporate actions (e.g. dividends). As the short seller, you pay dividends to the lender; factor this into P&L.
Be aware of buy-in risk: if the lender recalls shares, IBKR may close your short. Hard-to-borrow names carry higher risk.

To close the pair:

Close the long: Place a SELL order for the full long position (selling the shares you bought).
Cover the short: Place a BUY order (or use the "Buy to Cover" action if your platform shows it) for the full short position. This buys back the borrowed shares and closes the short.

Your profit or loss is the combined P&L of the long leg and the short leg (including commissions and any borrow fees).

Summary

Trading a pair on IBKR: use a Margin account, confirm short availability for the short leg, place a BUY for the long leg and a SELL for the short leg, then when the spread reverts, sell the long and buy to cover the short. IBKR's low costs and short inventory make it a strong platform for executing the pairs you find on Pair Parade.

For more on when to enter and exit, see When to Enter and Exit Pairs Trades. For screening cointegrated pairs, use the Pair Parade screener and the screening guide.