What is a Block Trade?

A block trade or block order is an order for a very large volume of securities. Generally, trades of 10,000 or more shares of stock are considered block trades, as are trades of bonds with a value of more than $200,000 US. Individual players rarely engage in block trades because they are so large; institutions such as universities and banks are usually the forces behind such trades. Since a high volume of trading can impact the market value of a share, block trades must be carried out carefully.

Typically, block trades are handled through a block house, a firm with specializes in such trades. The block house retains staffers who are skilled at handling block trades, and the firm may also have special relationships with other traders and firms to make block trading easier. Generally, a customer places a block order with the staff of the block house, and trusts the staff to get the best deal.

When buying up shares on the open market, a block house must move carefully, because the staff do not want to trigger a sudden rise or fall in stock value with the block trade. Generally, brokers at the block house contact brokers who specialize in the type of security being traded, and the experts fill the order through several sellers. A block trade may also be carried out directly between companies, by arrangement, as might be the case when a company merges with another.

Once a company has purchased a block of securities, it can hang onto them or sell them again in the hopes of turning a profit on the block trade. Some stock analysts use the buying and selling activities of major investors to measure market health and stock value. If an institutional investor orders a block trade, other smaller investors may follow suit in an attempt to ride the wave of interest and rising prices which the block trade can generate.

Block trades tend to have a high liquidity, meaning that they can readily be converted into cash assets if they are handled properly. However, poor handling can result in a decline in liquidity. Stockbrokers who specialize in block trading focus on a number of issues which are unique to block trades, such as trading confidentially so that other investors are not aware of a block trade until it has already been completed, and trading in such a way that the securities retain a high value.