Block trades involve large volumes of securities, typically handled by institutions like banks and universities. They are usually managed through a block house, which specializes in such trades and has relationships with other companies. Block trading should be done with care as it can affect market value. Stockbrokers who specialize in block trading focus on issues unique to block trading, such as confidential trading and retaining high security value.
A block trade or block order is an order for a large volume of securities. In general, trades of 10,000 or more shares are considered block trades, as are bond trades worth more than $200,000 in the US. Individual players rarely participate in block trades because they are so large. ; Institutions like universities and banks are usually the forces behind such trades. Since high trading volume can affect the market value of a stock, block trading should be done with care.
Block trades are usually handled through a block house, a company that specializes in such trades. The blockhouse retains employees who are experts in handling block trades, and the company may also have special relationships with other merchants and companies to facilitate block trading. Generally, a customer places a bulk order with the blockhouse staff and trusts the staff to get the best deal.
When buying shares on the open market, a block house should be moved carefully, because staff do not want to trigger a surge or fall in share value with block trading. Blockhouse brokers generally contact brokers who specialize in the type of security being traded, and experts fill the order through various vendors. A block trade can also take place directly between companies, by agreement, as might be the case when one company merges with another.
Once a company has bought a block of securities, it can either hold it or sell it again in the hope of making a profit trading the blocks. Some stock analysts use the buying and selling activities of major investors to gauge the health of the market and the value of the stock. If an institutional investor orders a block trade, other smaller investors may do the same in an attempt to ride the wave of interest and increased prices that the block trade can generate.
Block trades tend to be highly liquid, meaning they can easily be turned into cash assets if managed properly. However, mishandling can result in decreased liquidity. Stockbrokers who specialize in block trading focus on a number of issues that are unique to block trading, such as confidential trading so that other investors are not aware of a block trade until it has already been completed. completed, and trade in such a way that the securities retain a high value.
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