Pairs trading is a market-neutral investment strategy that seeks profits from the difference in price changes between two related instruments. The idea is that if two instruments have a historical tendency to move together, they will likely move together again after any periods of divergence. It’s when prices re-converge that pairs traders make their profits.
Pairs trading: Right for your portfolio?
While pairs trading is not without risks, it does boast several advantages, including controlled risk (a pairs trade is essentially an automatic hedge), profit regardless of market direction, no directional risk and smaller drawdowns. Having well-researched strategies, based on accurate historical modeling and the proper interpretation of results, can help ensure you identify truly correlated pairs, locate high-probability trading setups and use proper money management to exit trades – and look for the next pairs trading opportunity.
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TradingGuide to Pairs Trading
Pairs traders go long on an under-performer while simultaneously going short on the over-performer. -
TradingUnderstanding Forex Quotes
When trading in forex, all currencies are quoted in pairs. Find out how to read these pairs and what it means when you buy and sell them. -
TradingUsing Currency Correlations To Your Advantage
Knowing the relationships between pairs can help control risk exposure and maximize profits. -
InvestingAn Introduction To Pairs Trading With ETFs
This strategy can help investors reduce portfolio volatility and make money in uncertain markets.