#TradingPairs101 What is Pair Trading in the Trading World?

Trading pairs refer to investment strategies that involve two related assets, such as stocks, currencies, or indices, where one asset is bought and the other is sold. This "market neutral" approach aims to capitalize on temporary price differences between the assets, rather than relying on the overall market direction.

The concept of pair trading can be summarized as follows:

Market Neutrality:

The goal is to make profits without depending on the overall market direction, using the price relationship between two assets.

Relative Value Strategy:

A price relationship between two assets is identified that deviates from its historical range, seeking convergence to that range.

Hedging:

Correlation between the assets is used to offset risk, seeking a balance between long and short positions.

Examples of trading pairs:

✨Currency Pairs: EUR/USD, GBP/USD, USD/JPY, AUD/USD.

✨Stocks of similar companies: In the stock market, pairs of companies with similar characteristics can be identified but are quoted at different prices.

✨Indices: Pair trading can be used with stock indices to seek arbitrage opportunities.