What is 'Pairoff'

A pairoff is a purchase of securities to offset a previously transacted sale of the same security. Another meaning for the term is a transaction in securities markets where off-setting buy and sell trades are settled in cash, based on the difference in the prices between the off-setting trades. No securities trade hands; instead the settlement difference between the trades is calculated, and a money wire is sent to the appropriate party.


The offsetting position of a pairoff is usually transacted within the same day of the original purchase. This is also referred to as crystallization. In the case of matching trades, a pairoff can reduce settlement risks and security wire transfer fees. It is ultimately a form of speculation.

As an example of a pairoff in action, consider Brokerage XYZ that agrees to sell 100 shares of Company 123 to Brokerage ABC for $15,000. Simultaneously, Brokerage ABC agrees to sell 100 shares of Company 123 to Brokerage XYZ for $16,000. The difference between the two trades is $1,000.

Instead of actually trading the securities and transferring those shares to their respective accounts, the two brokerage firms pair off. In this case, Brokerage XYZ gives Brokerage ABC $1,000 instead of doing the actual transaction. By settling directly with each other, the two parties to a pairoff trade save money on costs associated with completing the trade and transaction.

How a Pairoff Works

When a pair-off instruction is sent, the settlement instructions for the pair-off cash wire must be included. The pair-off closes or draws down the amount of the open trade by the paired-off amount and only the associated gain or loss is moved. There can be partial and multiple pair-offs. In a partial pair-off, only part of the trade is paired-off, while the other part is either allocated into specified pools or paired off later against the remaining open trade amount. The pairing-off and allocation process can occur at different intervals and over different days. 

Pairoffs vs. Multiway Pairoff Transactions

A multiway pairoff transaction can be used for all investment types, except currency and swap investments. Multiway pairoffs allow a trader to partially or completely pair off multiple long and short tax lots. Closing occurs on the trade date of the multiway pairoff transaction. Gains realized from a short position are classified as short-term; gains realized from a long position will be short-term or long-term, depending on the periods defined in the country/tax matrix of the investment's issue country.

  1. Transaction Date

    A transaction date in the date upon which a trade takes place ...
  2. Brokerage Account

    A brokerage account is an arrangement that allows an investor ...
  3. Settlement Date Accounting

    Settlement date accounting is an accounting method that records ...
  4. Settlement Date

    A settlement date is defined as the date a trade is settled or ...
  5. Brokerage Company

    A brokerage company's main responsibility is to be an intermediary ...
  6. Opening Transaction

    Opening transaction refers to the act of initiating a trade. ...
Related Articles
  1. Trading

    Principal trading and agency trading

    Ever wonder what happens behind the scenes when you buy or sell a stock? Read on to find out.
  2. Investing

    The 4 Ways To Buy And Sell Securities

    Know the four main avenues of buying and selling investment instruments.
  3. Investing

    Opening Your First Brokerage Account

    Learn what steps you should take before you open your first brokerage account.
  4. Retirement

    The Rise of 401(k) Brokerage Accounts

    Many 401(k) plans now allow participants to trade stocks and bonds by offering brokerage accounts inside the tax-deferred plan. Good idea or too risky?
  5. Trading

    The Secret To Finding Profit In Pairs Trading

    Read about a market-neutral trading strategy using relatively low-risk positions.
  6. Tech

    Bitcoin Transactions Vs. Credit Card Transactions

    We provide an overview of the differences between bitcoin and credit card transactions, and the advantages of using one over the other.
  7. Investing

    The Tax Consequences of Having Multiple Managers

    Having multiple firms or advisors manage your investments could result in adverse tax consequences.
  8. Investing

    Analyst Recommendations: Do Sell Ratings Exist?

    Analyst reports can be an investor's best friend - but without knowing how to read them, you won't be able to fully utilize them.
  9. Investing

    E*TRADE's January Daily Average Revenue Trades Jump 57% Year Over Year

    E*TRADE saw a double-digit increase in daily average revenue trades, or DARTs, during January.
  10. Trading

    What is the Difference Between the two?

    The differences between retail and institutional traders lie in the size of the trade, level of sophistication, and the speed of transactions.
Trading Center