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.
|