Illusion terms are very common in almost all the profession present in the world. The main idea of having this illusion term is to attract the people towards it and making them feel that they are in something different or they are trying to learn some very new concept. Sometimes it happens that people who are well aware of something will fall in to illusion terms and will try to learn what they have already learnt. One among such term in the ‘statistical arbitrage’. The marketers say very clearly that the ‘statistical arbitrage’ is the term that is being used instead of ‘pair trading’.
On very simple terms pair trading is simple to understand. When a stock is bought or sold in pairs, which is truly based on the relationship that exists between the two stocks, then it is called as pair trading. It is a very common scenario that happens in every market. For example, when there are two different companies in the share market, they belong to the same sector, and then the shares of these companies will be following the same track as they belong to the same sector. The marketers will be watching this keenly and at one point if they find that the relationship between the stocks is out of sync, then they will sell or buy it. This is done in an assumption that the correlation will be put back soon as the stocks belong to same sector.
What are the risks in the pair trading?
Pair trading or statistical arbitrage is really a trade that occurs on a dilemma. This is because the person who involves in the statistical arbitrage may get into either a very good return or a drastic fall with huge loss. The statistical arbitrage is something which is meant only for some experts. It is advisable for the initial marketers not to follow this. Some of the risks in the pair trading are the mismatch risk, counter party risk, execution risk and the liquidity risk. In execution risk when one stock is closed and other one is open, the chances of the other one to provide better returns and also huge loss is high. It is not possible to close both stocks at a time. The mismatch happens if the non identical items or stocks are bought or sold.
If the counter party has made a deal to buy the stocks and at last if they fail to do it, then it is a sure loss. This is called counter party risk and the liquidity risk is the one in which the marketer will be forced to sell whatever he has, in case of losing his capital. If you are serious about the HFT, then it is good to join a better High Frequency Trading program so that you can learn High Frequency Trading from professionals. This will help you in finding a better High Frequency Trading job in the near future.
On very simple terms pair trading is simple to understand. When a stock is bought or sold in pairs, which is truly based on the relationship that exists between the two stocks, then it is called as pair trading. It is a very common scenario that happens in every market. For example, when there are two different companies in the share market, they belong to the same sector, and then the shares of these companies will be following the same track as they belong to the same sector. The marketers will be watching this keenly and at one point if they find that the relationship between the stocks is out of sync, then they will sell or buy it. This is done in an assumption that the correlation will be put back soon as the stocks belong to same sector.
What are the risks in the pair trading?
Pair trading or statistical arbitrage is really a trade that occurs on a dilemma. This is because the person who involves in the statistical arbitrage may get into either a very good return or a drastic fall with huge loss. The statistical arbitrage is something which is meant only for some experts. It is advisable for the initial marketers not to follow this. Some of the risks in the pair trading are the mismatch risk, counter party risk, execution risk and the liquidity risk. In execution risk when one stock is closed and other one is open, the chances of the other one to provide better returns and also huge loss is high. It is not possible to close both stocks at a time. The mismatch happens if the non identical items or stocks are bought or sold.
If the counter party has made a deal to buy the stocks and at last if they fail to do it, then it is a sure loss. This is called counter party risk and the liquidity risk is the one in which the marketer will be forced to sell whatever he has, in case of losing his capital. If you are serious about the HFT, then it is good to join a better High Frequency Trading program so that you can learn High Frequency Trading from professionals. This will help you in finding a better High Frequency Trading job in the near future.