Basket Trade

What is a 'Basket Trade'

A basket trade is 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.

BREAKING DOWN '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. Market Basket

    A subset of products or securities that is designed to mimic ...
  2. Basket Of Goods

    A relatively fixed set of consumer products and services valued ...
  3. Basket

    A single unit of at least 15 stocks that are used in program ...
  4. Burst Basket

    A burst basket refers to a particular type of stock transaction ...
  5. Income Basket

    Categories for which various sources of income are allocated ...
  6. Country Basket

    A selection of countries that are grouped together in order to ...
Related Articles
  1. ETFs & Mutual Funds

    ETF Tracking Errors: Protect Your Returns

    Tracking errors tend to be small, but they can still adversely affect your returns. Learn how to protect against them.
  2. ETFs & Mutual Funds

    What is an Index?

    An index is a statistical means of calculating a change in an economy or market.
  3. Managing Wealth

    How Mutual Fund Managers Pick Stocks

    Learn about how mutual fund managers choose stocks based on the type of funds they manage and the investment goals of the funds' shareholders.
  4. Financial Advisor

    Target-Date vs. Index Funds: Is One Better?

    Target-date and index funds are difficult to compare because they differ in both structure and objective, though investors can compare two specific funds.
  5. Trading

    What's a Marketable Security?

    Marketable securities are financial instruments that can be readily bought and sold in a public market. The key feature is the ease with which it can be sold and converted into cash. Usually, ...
  6. ETFs & Mutual Funds

    How Mutual Funds Affect Stock Prices

    Find out how mutual fund trading activity -- and that of other institutional investors -- impacts stock prices, including both short and long-term effects.
  7. Trading

    The Consumer Price Index

    Find out how this economic measure can help you make key financial decisions.
  8. Managing Wealth

    Retirement Portfolios: Adding Crucial Alternatives

    Diversifying assets in a retirement portfolio means not putting all of your eggs into one basket.
  9. Markets

    Explaining Market Orders

    A market order is the most common order used to purchase a financial security.
  10. Investing

    How Does Securities Lending Work?

    Securities lending is the act of loaning a stock or other security to an investor or firm.
RELATED FAQS
  1. How do I use a "basket" option?

    A basket option is an option with an underlying asset "basket" of securities, currencies or commodities. Basket options are ... Read Answer >>
  2. Why can you short sell an ETF but not an index fund?

    To answer this question, we should first define exactly what an index fund is. An index fund is a mutual fund, or a basket ... Read Answer >>
  3. How are the shares of a index fund created?

    When a firm creates an index fund and the shares have been allocated, are the number of shares fixed? Can the company continually ... Read Answer >>
  4. How is the basket of goods selected for the Consumer Price Index?

    Read about alterations in the market basket for the consumer price index, a measure of approximate consumer price changes ... Read Answer >>
  5. What are the characteristics of a marketable security?

    Find out what it takes for a financial asset to be considered a marketable security, including its liquidity, intent of use ... Read Answer >>
  6. Is it possible to invest in an index?

    First, let's review the definition of an index. An index is essentially an imaginary portfolio of securities representing ... Read Answer >>
Hot Definitions
  1. Put Option

    An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security ...
  2. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  3. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  4. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  5. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  6. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
Trading Center