Basket Trade

Basket Trade

1. A single order or trade in 15 or more securities, especially in large amounts. Basket trades can be open orders in which the computer is instructed to wait until a certain price prevails before buying or selling the large quantity of securities. This is a service offered exclusively to institutional investors and high net-worth individuals.

2. A large trade executed automatically by a computer on behalf of institutional investors. Basket trades are usually open orders in which the computer is instructed to wait until a certain price prevails before buying or selling the large quantity of securities. Because of the large number involved, basket trading may lead to increased market volatility; because of this, it has been blamed for the 1987 Stock Market Crash, because the computers sold automatically as prices were reached, which made the problem worse. Exchanges now limit the times when basket trades may occur to prevent a recurrence. They are also called program trades. See also: Algorithmic trading.