A block trade is a high-volume transaction in the stock market, usually conducted between institutional investors, such as mutual funds, hedge funds, and pension funds. Block trades are often managed outside the open markets to avoid impacting the share price.
The minimum number of shares in a block trade varies, but a common benchmark is 10,000 shares, or a total market value of at least $200,000.
Block trades are generally handled by brokerage firms through their block trade desks, which specialize in serving institutional clients. These desks negotiate terms of purchase and sale, manage risk, and work to minimize the market impact of large transactions.
The pricing of block trades can be tricky, as they often involve securities worth millions of dollars. A large block of shares being sold can drive the price down, and a large block being purchased can drive the price up, if done in the open market. Therefore, block trades are often executed at a negotiated price, which can be different from the market price. This way, institutions can transfer large amounts of securities without disturbing the market prices significantly.
As a result of their size, block trades can sometimes lead to significant market movements if they are made public or if the information about the trade is leaked. For this reason, they are often kept confidential and conducted through private arrangements.