Basket Trade

AAA

DEFINITION of 'Basket Trade'

An order to buy or sell a group of securities simultaneously. Basket trading is essential for institutional investors and investment funds who 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. In order for a trade to be considered a "basket trade," it must typically involve the sale or purchase of 15 or more securities.

INVESTOPEDIA EXPLAINS 'Basket Trade'

For example, an index fund aims to track its target index by holding most or all the securities of the index. As new cash comes in that could increase the value of the fund, management must simultaneously buy a large number of securities in the proportion they are present in the index. If it were not possible to execute a basket trade on all of these securities, then the quick price movements of the securities would prevent the index fund from holding the securities in the correct proportions.

RELATED TERMS
  1. Burst Basket

    A burst basket refers to a particular type of stock transaction ...
  2. Block House

    A brokerage firm with the primary focus of locating potential ...
  3. Portfolio

    A grouping of financial assets such as stocks, bonds and cash ...
  4. Institutional Investor

    A non-bank person or organization that trades securities in large ...
  5. Index Fund

    A type of mutual fund with a portfolio constructed to match or ...
  6. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected ...
Related Articles
  1. Fundamental Analysis

    Institutional Investors And Fundamentals: What's The Link?

    Big-money sponsorship might make a company look good, but it's not always a reliable gauge of stock quality.
  2. Options & Futures

    Brokers and Online Trading

    How do you find the right broker for your investment needs? Start by reading our broker tutorial.
  3. Mutual Funds & ETFs

    Index Investing

    Get to know the most important market indices and the pros and cons of investing in them.
  4. Fundamental Analysis

    What are some CEO characteristics/behaviors that could lead to a drop in stock prices?

    Learn about CEO behaviors that may adversely affect a stock price. Explore the conviction of Martha Stewart for obstruction of justice and its consequences.
  5. Brokers

    How long does it take a broker to confirm a trade after it is placed?

    Learn about placing trades with a broker and the amount of time required to received confirmation of different types of orders, such as limit and stop-loss.
  6. Trading Systems & Software

    How do you know if a trade placed to a broker is confirmed?

    Learn how to check if trades placed with brokers online or over the telephone have been filled and confirmed. Explore different types of orders.
  7. Active Trading Fundamentals

    What's the difference between a market order and a limit order?

    Buy and sell trades with market orders at the present stock price and execute limit orders if the stock price falls within certain present limits.
  8. Trading Strategies

    Patience Is A Trader's Virtue

    Waiting may be the biggest key to reeling in that trophy investment.
  9. Investing Basics

    Narrow Your Range With Stop-Limit Orders

    With stop-limit orders, buyers protect themselves from prices too high for their tastes.
  10. Trading Strategies

    How to Use Trailing Stops

    A trailing stop is an order to buy or sell a security if it moves in an unfavorable direction.

You May Also Like

Hot Definitions
  1. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  2. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  3. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  4. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  5. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  6. Break-Even Analysis

    An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even ...
Trading Center