If the Federal Reserve cuts interest rates "by the book" for the first time and makes a record-breaking bet on a substantial rate cut, it will face huge risks of losses

If Federal Reserve officials choose to kick off the rate-cutting curtain in a standard way, the record-breaking bets could lead traders to suffer significant losses. Data compiled by institutions shows that trading activity in October federal funds futures used by investors to bet on Wednesday's decision has surged to the highest level comparable since the contract was introduced in 1988. These new bets are mostly on the Fed cutting rates by 50 basis points. Data shows a sharp increase in relevant positions this week. Subadra Rajappa, head of U.S. rate strategy at Societe Generale, said this has put the market under significant selling pressure in the case of a smaller rate cut by the Fed and Powell signaling a gradual approach. "If the Fed cuts by 25 basis points instead of 50, the market reaction would be much stronger," she said. "Talk of unwinding, optimism, a looser financial environment, and the like may be put to the test."