- Basket, in the financial context, refers to several securities bundled together that can be bought or sold together for investment purposes or returns.
- Basket order, another commonly used term, means a transaction order on a group of securities at one go.
What is a Basket?
Basket, in the financial context, refers to several securities bundled together that can be bought or sold together for investment purposes or returns. The term, basket, is usually used for an exchange-traded fund (ETF).
An ETF contains a securities basket that is traded on an exchange. An ETF basket has a makeup similar to the benchmark index the ETF tracks but, of course, in multiples of the same ratio of securities as the benchmark.
A Nifty 50 ETF will be a basket in which all the 50 stocks of the Nifty 50 index will be present.
Types of Baskets
Index funds can be defined as a basket of stocks, and all the stocks in the basket meet specific criteria. Index funds need to regularly adjust the portfolio in order to ensure that it holds only those stocks that meet the defined criteria, and also those stocks are kept in a proper ratio. Basket trading enables the fund managers to efficiently and quickly sell and buy the securities in order to rebalance the portfolio. Basket orders also let the institutional as well as retail traders to form their own index by selling and buying multiple positions.
As evident from its name, a currency basket contains a number of currencies. The weights in which the currencies will be held is decided by the trader or according to a specific strategy. A basket allows the institutional traders to quickly execute huge volumes in multiple currency pairs.
There may be multiple reasons for a trader to compile a basket of assets. They may also want a basket of stocks which are of a particular sector or industry group. An example of such a basket is a sector ETF.
Basket order, another commonly used term, means a transaction order on a group of securities at one go.