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What is a Pairoff?

A pairoff, also known as 'pairing off,' occurs when a brokerage firm buys and sells short and long positions that offset one another and then settles those trades in cash.

How Does a Pairoff Work?

Let's say Brokerage XYZ agrees to sell 100 shares of Company 123 to Brokerage ABC for $15,000. Simultaneously, Brokerage ABC agrees to sell 100 shares of Company 123 to Brokerage XYZ for $16,000. The difference between the two trades is $1,000.

Instead of actually trading the securities and transferring those shares to their respective accounts, the two brokerage firms pair off. In this case, Brokerage XYZ gives Brokerage ABC $1,000 instead of doing the actual transaction.

Why Does a Pairoff Matter?

Pairing off is against the law because it artificially alters and manipulates the market for the securities involved. The transactions give the impression of more demand for a security.

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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.