Due to the Federal Reserve's expected interest rate cut on Wednesday, traders are betting on record highs. If Federal Reserve officials choose a standard rate cut, they may face huge losses.

According to data compiled by Bloomberg, trading activity for federal funds futures in October has surged to the most extreme level among such contracts since their inception in 1988, with investors using futures to bet on this week's policy meeting. The data shows that most of these new bets are aimed at a significant 50 basis point interest rate cut, including the surge in positions this week.

As the Federal Reserve is about to begin lowering its target interest rate, the debate among investors is focused on the magnitude of the first rate cut.

Although the market unanimously agreed at the beginning of last week that Fed officials would choose to cut interest rates by 25 basis points as a starting point, there has been a noticeable change in recent days as media reports and comments from former New York Fed Chairman William Dudley suggest that policy makers may also easily decide to take more aggressive action.

The implied probability in the market now shows that the likelihood of a 50 basis point rate hike is slightly higher than 50% before the Federal Reserve makes a decision. At the same time, the recent surge in benchmark US Treasury bonds has led to a significant drop in yields, with the two-year US Treasury yield hitting a two-year low of 3.52% this week.

Subadra Rajappa, head of US interest rate strategy at Soci é t é G é n é rale, said that if the Federal Reserve starts to make smaller moves and Federal Reserve Chairman Powell says he will take a gradual approach, this will make the market vulnerable to selling pressure.

She said, "If the Federal Reserve cuts interest rates by 25 basis points instead of 50 basis points, the market reaction will be much stronger." "This position, optimism, and looser financial environment may test this statement

Bloomberg strategists said, "Regardless of how investors react to the Fed's decision, there is no reason for them to give up further interest rate cuts and lean towards buying on dips.