Pairs Trade

Dictionary Says

Definition of 'Pairs Trade'

The strategy of matching a long position with a short position in two stocks of the same sector. This creates a hedge against the sector and the overall market that the two stocks are in. The hedge created is essentially a bet that you are placing on the two stocks; the stock you are long in versus the stock you are short in.
Investopedia Says

Investopedia explains 'Pairs Trade'

It's the ultimate strategy for stock pickers, because stock picking is all that counts. What the actual market does won't matter (much). If the market or the sector moves in one direction or the other, the gain on the long stock is offset by a loss on the short.

Sign Up For Term of the Day!

Try Our Stock Simulator!

Test your trading skills!

Related Definitions

  1. Butterfly Spread

    A neutral option ...
  2. Hedge

    Making an ...
  3. Long (or Long Position)

    1. The buying of ...
  4. Paired Shares

    The stock of two ...
  5. Pairing Off

    An illegal ...
  6. Short (or Short Position)

    1. The sale of a ...
  7. Perfect Hedge

    A position ...
  8. Hedging Transaction

    A type of ...
  9. Hedge Accounting

    A method of ...
  10. Sector

    1. An area of ...

Articles Of Interest

  1. The Secret To Finding Profit In Pairs Trading

    Read about a market-neutral trading strategy using relatively low-risk positions.
  2. Trading The Odds With Arbitrage

    Profiting from arbitrage is not only for market makers - retail traders can find opportunity in risk arbitrage.
  3. An Introduction To Pairs Trading With ETFs

    This strategy can help investors reduce portfolio volatility and make money in uncertain markets.
  4. What is relative strength?

  5. Understanding The Ticker Tape

    We explain the meaning and use of that reel of symbols whizzing across your TV or computer screen.
  6. Whisper Numbers: Should You Listen?

    These unofficial forecasts hold the potential for insider insight - and investment risk.
  7. Translating Ticker Talk

    Stock tickers can say a lot about a company in just a few letters. Find out how to read them.
  8. Should You Be Afraid Of Dark Pool Liquidity?

    Don't fear the deep end. Dark pool liquidity can help drive down stock cost for everyday investors.
  9. Turnaround Stocks: U-Turn To High Returns

    Find out which catalysts can turn struggling stocks around to create a tidy profit.
  10. Triple Screen Trading System - Part 2

    Market tide is the basis for making trading decisions in this three-part system.

comments powered by Disqus
Recommended
Loading, please wait...
Trading Center