Pair trading* is a technique to improve the productivity and quality of stock trading (or any type of financial trading, e.g. commodities). In pair trading, two traders share a single workstation. The trader at the keyboard (usually called the driver) actively trades, while the second trader (called the observer or navigator) is reviewing, advising, thinking through problems and generally sanity checking the first. These two roles switch on a regular basis (e.g. every ½ hour). The pairs also swap partners every day.
Pairing is one of the most valuable techniques you can bring your business, yet it is initially counter-intuitive. It is hard to convince management that pairing will do anything but double your costs. In actual fact, most empirical studies show a significant increase in quality for a small (15-20%) cost overhead as compared to individuals working independently.
Some history about pair trading. This is an idea that I, and some of my clients in the finance sector, have been developing and experimenting on for a number of years. Pair Trading is heavily based on the agile technique of pair programming, in which computer software is written in pairs. This has proven successful in many organizations. It is claimed (with some empirical support, though not entirely conclusive) that the ~15% overhead is actually less than the long-term cost of poor decision making (and in the case of software, defect resolution and maintenance).
So why would you do this? Let’s look at some of the advantages and pitfalls:
Also, understand that the advantages are going to be different depending on the type of pair. For example, an expert-novice is going to have a greater skills transfer than expert-expert or novice-novice. That being said, when you are rotating pairs, it is valuable to have all combinations.
While it can be described fairly easily, pair trading is not the easiest thing to learn.
I hope this gives you some ideas on how you can bring adaptability into your workplace. If you are unsure, experiment. Set up one team as a pair trading team and measure their performance against their non-pair peers. If, after a couple of months, they are outperforming the other teams then you know you are onto a winner.
* Not to be confused with a Pair Trade
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