Pairs trade

Okay kiddo, imagine you have two toys - a car and a truck. Sometimes you love playing with the car more, and other times you love the truck more. But overall, you really like both of them and don't want to get rid of either one.

Well, grown-ups do something similar with stocks. They choose two stocks that they think are similar in some way, and they buy them both. For example, they might buy shares of Coca-Cola and Pepsi, because they're both companies that sell soda.

But here's where it gets interesting. Sometimes, the value of one stock will go up and the value of the other stock will go down. That's just like how, when you're playing with your toys, you might get tired of the car and want to play with the truck instead.

When this happens with stocks, it creates an opportunity for grown-ups to make money. They can sell some of the stock that has gone up, and buy more of the stock that has gone down. This is called a pairs trade, because they're trading between two stocks that they've paired up.

Basically, a pairs trade is a way for grown-ups to make money by buying and selling two stocks that they think are similar to each other. They're always watching the stocks to see which one is doing better, and then they make decisions about when to buy more of one and sell some of the other. Just like you decide when it's time to switch from playing with the car to playing with the truck!