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basis trading

   Also found in: Wikipedia 0.01 sec.
basis trading
An arbitrage operation in which an investor takes a long position in one type of security and a short position in a similar security in an attempt to profit from a change in the basis between the two securities. For example, an investor might purchase a call with an April expiration and simultaneously sell short a call with a different expiration or strike price on the same stock. The investor expects that the values of the two positions will change over time such that a profit will ensue. Basis trading is undertaken when the investor feels one security is priced too high or too low relative to the price of another security. Because of this, the profit on one side of the trade should more than cancel out the loss on the opposite side of the trade. Basis trading may involve an index or group of securities as well as individual securities. Also called relationship trading. Compare program trading.


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He authored high-frequency arbitrage and basis trading models for the
ICAP's electronic broking platforms gives our clients access to multiple liquidity pools which include US Treasury products; EU, Japanese, Australian, South African Government bonds; UK Gilts; US and EU Repurchase Agreements; US Agency, Basis trading in multiple countries; US Mortgages; liquid Eurobonds; credit derivatives; Euro overnight indexed swaps and forward foreign exchange.
eSpeed expects electronic trading in US Agencies, Off-The-Runs, Spread and Basis Trading of US Treasuries, and expanded European Government bond trading to assist the Company's results in the second half of 2003.
 
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