Custom Basket Definition
Learn the definition of custom basket and other ETF terminology from the etf.com glossary.
Learn more about Custom Basket
A custom basket in the context of ETFs refers to a unique set of securities chosen by authorized participants (APs) during the creation or redemption process. APs can assemble a custom basket that aligns with the ETF's underlying index, allowing for more efficient and cost-effective creations and redemptions. This flexibility enables APs to optimize trading strategies and manage transaction costs. Custom baskets enhance the liquidity and price efficiency of ETFs by accommodating the specific needs of market participants. This mechanism is integral to the ETF structure, promoting the close tracking of the fund's market price to its net asset value.
Related Terms
Authorized Participant (AP), Creation and Redemption Mechanism, Liquidity, Net Asset Value (NAV)
