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What is a basket trade?

A basket trade typically involves the sale or purchase of 15 or more securities and is generally used to purchase stocks. Such baskets are typically measured against a benchmark or tracked against an entity, such as an index, to measure their returns. Suppose an investment fund wishes to take advantage of the volatility in an index.

What is a basket trading strategy?

A basket trading strategy that uses share weighting will divide the overall amount equally between blocks of shares. Basket trades allow investors to create a trade that is tailored to them, that allows for easy allocation across many securities, and that gives them control over their investments.

Why is basket trading important?

Basket trading is essential for institutional investors and investment funds that wish to hold a large number of securities in certain proportions. As cash moves in and out of the fund, large baskets of securities must be bought or sold simultaneously, so that price movements for each security do not alter the portfolio allocation.

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