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Pairs Trading

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Category – Pairs Trading

Pairs trading is a market-neutral strategy that involves taking opposite positions in two correlated assets, typically a long position in one and a short position in the other. In trading, pairs trading is used to profit from relative price movements, rather than the direction of the market. Traders look for pairs of stocks, commodities, or currencies with high correlation and trade based on deviations from the historical price relationship. It reduces exposure to overall market risk, focusing on asset relationships.

TRADING STRATEGY

A Trading Strategy is a systematic plan used by traders to execute trades, aiming for profitability. It involves rules and techniques based on technical or fundamental analysis, risk management, and market conditions.

ARBITRAGE

Arbitrage is the simultaneous purchase and sale of an asset to profit from a difference in the price, exploiting price differences of identical or similar financial instruments on different markets or in different forms.

QUANTITY PURCHASED

Quantity Purchased represents the total number of units acquired in a transaction, trade, or portfolio, reflecting the initial position size, factoring in leverage.

QUANTITY REMAINING

Quantity Remaining represents the number of units still held in open positions after partial or full closures, reflecting active holdings.

QUANTITY CLOSED

Quantity Closed represents the number of units exited from positions through sales or other closures, reflecting completed transactions.

TOTAL QUANTITY TRADED

Total Quantity Traded represents the total number of units traded, including all purchased and closed quantities, across transactions, trades, or portfolios.

OPTIMAL QUANTITY

Optimal Quantity calculates the ideal number of units to trade, balancing risk, reward, and capital constraints. It aligns trade size with risk tolerance and objectives.