Pairs Trading

Pairs trading involves buying and selling two related stocks when their prices diverge in the expectation they will move back together over time. This strategy is regarded as less risky than an outright purchase or sale.  Implementation varies but the idea is the same - to buy the undervalued pair and sell the overvalued pair.

Examples abound however a good starting point is to chart two related stocks that you have an interest in. This will show you how much they have diverged in the past and how quickly they came back together. The ASX website amongst others allows you to chart two stocks or a stock and an index.

Commission, interest, platform fees, dividends, variation margin and other fees and charges may apply to financial products or services available from First Prudential Markets.

The information in this website has been prepared without taking into account your personal objectives, financial situation or needs. You should consider this information in light of your objectives, financial situation and needs before making any decision about whether to acquire or dispose of any financial product. A Product Disclosure Statement for each of the financial products available from First Prudential Markets can be obtained either from this website or on request from our offices and should be considered before entering into transactions with us. Derivatives can be risky; losses can exceed your initial deposit. First Prudential Markets recommends that you seek independent advice from an appropriately qualified person before deciding to invest in or dispose of a derivative.
First Prudential Markets Pty Ltd (ABN 16 112 600 281, AFS Licence No. 286354). ^Investment Trends CFD Report, May 2007