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What is pair trading ?

April 26, 2017pair trading

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What is pair trading ?

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This trading strategy involves taking a position on the relative performance of two stocks. It is achieved by buying futures on the stock expected to perform well and selling futures on the stock anticipated to perform poorly. The overall gain or loss depends on the relative performance of the two stocks. Similarly it is possible to take a position in the relative performance of a stock versus a market index. For example traders who would like to take only company specific risk could buy/sell the relative index future.