How is pairs trading different from a regular long or short? ⚖️
🔹 A regular trade depends on price direction: get the market move right and you profit; get it wrong and you lose.
🔹 A pairs trade is based on the difference between two coins. Broad market gains or losses are partly offset.
🔹 The risks change too: in addition to directional risk, there’s the risk that the relationship between the assets will change.
🔹 A pair requires more attention, since you have two positions, two liquidation risks, and two sets of costs.
Example: the market falls, coin A drops 4%, and coin B drops 5%. A regular long on A returns -4%. A pair trade—long A, short B—returns -4% + 5% = +1% of the leg amount (before fees).
⚠️ A common mistake is assuming a pairs trade is automatically safer than a regular trade. The risk doesn’t disappear; it just changes form.
Which risk do you find easier to understand: market direction or how the spread behaves?
#Futures #CryptoTrading #CryptoEducation #RiskManagement
🔹 A regular trade depends on price direction: get the market move right and you profit; get it wrong and you lose.
🔹 A pairs trade is based on the difference between two coins. Broad market gains or losses are partly offset.
🔹 The risks change too: in addition to directional risk, there’s the risk that the relationship between the assets will change.
🔹 A pair requires more attention, since you have two positions, two liquidation risks, and two sets of costs.
Example: the market falls, coin A drops 4%, and coin B drops 5%. A regular long on A returns -4%. A pair trade—long A, short B—returns -4% + 5% = +1% of the leg amount (before fees).
⚠️ A common mistake is assuming a pairs trade is automatically safer than a regular trade. The risk doesn’t disappear; it just changes form.
Which risk do you find easier to understand: market direction or how the spread behaves?
#Futures #CryptoTrading #CryptoEducation #RiskManagement