US ETF PairsHow ETF Pairs Works
Buy the cheaper ETF, profit when institutional arbitrage corrects the price
The Simple Concept
When two ETFs track the same underlying asset (like GLD and IAU for gold), they should have a stable price ratio. When one becomes temporarily cheaper than normal, ETF Pairs buys it. Large institutional funds detect the same imbalance and also buy the cheaper ETF, pushing its price back up. You profit from this price rise.
Complete Trade Journey
Spread Detection
App scans all 182 ETF pairs and calculates the price ratio vs historical reference.
GLD = $182, IAU = $36 → Ratio = 5.05 (normal = 5.00) → Spread = +1%Signal Generated: BUY the Cheaper ETF
When spread exceeds threshold, a signal is generated.
- Spread > threshold → BUY QUOTE (QUOTE is undervalued)
- Spread < -threshold → BUY BASE (BASE is undervalued)
You Buy the Undervalued ETF
Order sent to your Alpaca account. Position opened for the undervalued ETF.
Buy IAU at $36Institutional Arbitrage Kicks In
Large funds detect the same imbalance.
- They buy the undervalued ETF massively
- They sell the overvalued ETF to hedge
- The spread naturally closes back to normal
Take Profit
The spread is back to normal. Take Profit triggered or manual exit. Position closed with profit.
Sell IAU at $36.40 → +1.1% ProfitWhy This Works (Low Risk)
Same Underlying Asset
GLD and IAU both track gold - their ratio MUST converge
Institutional Support
Big funds do the same arbitrage, reinforcing mean-reversion
Stop Loss Protection
Automatic exit if spread widens beyond risk threshold
Diversification
Trading across 182 pairs spreads risk effectively
Understanding Trading Signals
| Signal | Condition | Action | Meaning |
|---|---|---|---|
BUY BASE | Spread < -Threshold | Buy BASE, Sell QUOTE | BASE is undervalued |
BUY QUOTE | Spread > +Threshold | Buy QUOTE, Sell BASE | QUOTE is undervalued |
HOLD | -Threshold < Spread < +Threshold | No action | Spread is normal |
Risk Management
Stop Loss
Automatically exits positions when losses exceed the configured percentage.
Take Profit
Locks in gains when profit target is reached.
Position Sizing
Configurable allocation between positions and cash reserve.
- Correlation Breakdown: Pairs may temporarily decorrelate during market stress.
- Liquidity Risk: Some ETFs have lower volume, affecting execution.
- Execution Slippage: Fast-moving markets may result in different prices than expected.
- Market Hours: Trading only available during US market hours (9:30 AM - 4:00 PM ET).
Market Hours & Trading Schedule
Market Open
9:30 AM - 4:00 PM ET
Monday through Friday
Market Closed
Weekends & US Holidays
Scanning still works but no trades execute
Glossary of Terms
ETF (Exchange-Traded Fund)
A fund traded on stock exchanges that tracks an index, commodity, or basket of assets.
Spread
The percentage deviation of the current price ratio from the reference ratio.
Mean Reversion
The theory that prices tend to return to their average over time.
Pairs Trading
A market-neutral strategy exploiting price differences between correlated assets.
Base ETF
The first ETF in a pair (numerator in the price ratio calculation).
Quote ETF
The second ETF in a pair (denominator in the price ratio calculation).
Paper Trading
Simulated trading with virtual money to test strategies without risk.