A long-standing strategy employed by hedge funds to profit from market fluctuations is set to become more accessible and potentially less expensive, sparking concerns about the potential impact on market stability. The 'basis trade' involves exploiting the difference in prices between two related assets, such as commodities or currencies, but has been criticized for contributing to market volatility. By creating a more affordable instrument, the strategy may become more widespread among investors, potentially amplifying its influence on global markets. As a result, regulators and market experts are closely watching the development, seeking to balance the benefits of increased investment with the risks of heightened market volatility.
Instrument set to cut cost of popular hedge fund ‘basis trade’ strategy that has been blamed for adding to market volatility
