Pairs Trading Futures
Futures traders have numerous products, tools and strategies to take advantage of price extremes and ranging markets, but pairs trading is something completely different. Pairs trading uses correlations and divergences between two markets to capture a potential profit. While it isn’t riskless, investors who understand how pairs trading works and know how to control risk and manage profits often find the strategy makes a great addition to a trading “toolbox” because it doesn’t depend on market direction.
In a pairs trade, traders identify two tradeable products (markets) that correlate in price. That means they have reason to believe that when one market goes up, the other will go down. To profit from that pair, traders open a long...
