Definition:
A block trade is a large-volume trade in a security, typically involving a significant number of shares or bonds. It’s often executed through a broker-dealer who arranges the transaction with other market participants.
Key characteristics of block trades:
- Large volume: Block trades involve a substantial number of securities, often exceeding a certain threshold set by the exchange.
- Institutional investors: Block trades are typically executed by institutional investors, such as mutual funds, pension funds, and hedge funds.
- Negotiation: Block trades are often negotiated between the buyer and seller, rather than being executed through the open market.
- Price discovery: Block trades can help to discover the fair market value of a security, especially for thinly traded securities.
Why are block trades used?
- Liquidity: Block trades can help to increase liquidity in the market, especially for large-cap stocks.
- Price discovery: They can help to discover the fair market value of a security.
- Execution efficiency: Block trades can be executed more efficiently than smaller trades, as they can be negotiated directly between the buyer and seller.
However, it’s important to note that block trades can also have an impact on the market, as large-volume trades can move the price of a security.
In essence, a block trade is a large-volume trade in a security that is often executed through a broker-dealer and can have a significant impact on the market.
