Block Trades22 May 2017 17:12
What is a 'Block Trade'
A block trade, also known as a block order, is an order or trade submitted for the sale or purchase of a large quantity of securities. A block trade involves a significantly large number of equities or bonds being traded at an arranged price between two parties, sometimes outside of the open markets, to lessen the impact on the security price. In general, 10,000 shares of stock, not including penny stocks, or $200,000 worth of bonds are considered a block trade.
BREAKING DOWN 'Block Trade'
Due to the size of block trades, both on the debt and equities markets, individual investors rarely, if ever, make block trades. In practice, these trades typically occur when large hedge funds and institutional investors buy and sell large sums of bonds and shares in block trades via investment banks and other intermediaries.
If a block trade is conducted on the open market, traders must be careful with the trade, seeing as it causes large fluctuations in volume and can impact the market value of the shares or bonds being purchased. Therefore, block trades are usually conducted through an intermediary, rather than the hedge fund or investment bank purchasing the securities normally, as they would for smaller amounts.
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