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Market-neutral trading is a way to combine long positions with short ones. Rather than place your bets on upward or downward trends, this strategy takes advantage of volatility while mitigating risk.
A portfolio is truly market-neutral if it exhibits zero correlation with the unwanted source of risk. [1] Market neutrality is an ideal, which is seldom possible in practice. [2] A portfolio that appears market-neutral may exhibit unexpected correlations as market conditions change. The risk of this occurring is called basis risk.
A pairs trade or pair trading is a market neutral trading strategy enabling traders to profit from virtually any market conditions: uptrend, downtrend, or sideways movement. This strategy is categorized as a statistical arbitrage and convergence trading strategy. [ 1 ]
This options trading strategy is the flipside of the long put, but here the trader sells a put — referred to as “going short” a put — and expects the stock price to be above the strike ...
Pairs trading or pair trading is a long-short, ideally market-neutral strategy enabling traders to profit from transient discrepancies in relative value of close substitutes. Unlike in the case of classic arbitrage, in case of pairs trading, the law of one price cannot guarantee convergence of prices.
Consider market neutral funds, which aim to provide stable returns and mitigate risk in various stock market environments. But like with any investment strategy, it's worth weighing the ...
The trading strategy is developed by the following methods: Automated trading; by programming or by visual development. Trading Plan Creation; by creating a detailed and defined set of rules that guide the trader into and through the trading process with entry and exit techniques clearly outlined and risk, reward parameters established from the outset.
Option trading can deliver tremendous profits, but the flip side of those gains is the potential for tremendous losses, since option trading is a zero-sum game. Those who are just getting started ...