What Is A Block Trade?
A block trade is a large-volume transaction of securities or commodities that takes place outside the regular market. It involves two parties, usually an institutional investor and a broker-dealer, who agree to buy or sell a certain number of shares at an agreed upon price. The purpose of this type of trade is to quickly move large amounts of stock without significantly affecting the current market prices. Block trades are typically used by institutional investors such as mutual funds and pension plans when they need to make significant changes in their portfolios but do not want to disrupt the markets with their transactions.
Block trades can also be used for hedging purposes, allowing traders to offset potential losses from other investments while still maintaining liquidity in their portfolio. This type of trading allows institutions to manage risk more effectively than if they were buying and selling individual stocks on the open market. Additionally, it provides them with greater flexibility since they can negotiate terms directly with each other rather than relying on public exchanges like NYSE or NASDAQ for pricing information.