A block trade is a large securities transaction that can involve buying or selling a large number of shares or bonds. Block trades are often used by institutional investors to avoid impacting market prices.
How block trades work
- Block trades are negotiated privately between buyers and sellers.
- They are often broken into smaller orders to hide their true size.
- Block trades can be beneficial for both buyers and sellers.
- They can be more difficult than other trades and can expose broker-dealers to more risk.
Why block trades are used
- Block trades can help analysts assess where institutional investors are pricing a stock.
- They can allow large transactions without impacting market prices.
- They can offer more control over negotiation.
Block trade risks
- Block trades can pose risks of information leakage and market manipulation.
- They can tie up a broker-dealer's capital.
- They can expose broker-dealers to large losses if the position has not been sold.
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