Aaron K Harris

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What is statistical arbitrage in forex trading?

Statistical arbitrage (stat arb) uses quantitative models to identify price relationships between pairs, betting on mean reversion. Institutions run complex models across baskets of currencies, exploiting temporary dislocations. Retail traders can apply simplified versions with correlation and cointegration tools. Benefits: systematic, data-driven profits. Risks: models fail during regime shifts when relationships break down. Example: EUR/CHF correlations collapsed after SNB unpegged CHF. Stat arb requires constant recalibration. It’s not a “set and forget” system—it demands statistical rigor and market awareness.