Basket Trade

Definition

Basket trade is a term common in securities trading as it involves the simultaneous trading of a group of securities known to be in a “basket.” It is basically used to buy stocks. This type of security trading is beneficial for large investors who seek to hold large amounts of securities at the same time. To qualify as a “basket of trade”, the expected basket of trade must have at least 15 securities in it and they are tracked against indexes to assess returns.

What is Basket Trading?

Basket trading is a process whereby a trader trades a selection of assets, securities, or currencies simultaneously. It gives investors or traders the opportunity to spread the risks amongst all the variables. Baskets are usually used to buy stocks, however, they can also be used to trade commodities such as agricultural produce, and currencies as in forex.

Other Information

The basket strategy can be likened to buying goods at the supermarket, rather than pick out stuff one after the other to go pay for them at the counter, you can simply collect a variety of goods that interest you and pay for them at the same time by the time you get to the counter. Same applies to basket trading, rather than manually buy or sell assets or securities, the trader can place all securities in a single basket and trade.

The basket trade strategy serves multiple purposes one of which is hedging of securities. Also, in order to sustain price movements on portfolio allocations more baskets of securities must be traded at the same time. In addition to its purposes, it holds a number of benefits such as;

• Creating baskets that fit individual organizational preferences

• Easy investment allocation across all securities

• Better control and tracking over investments