Block trades

The term ‘block trade’ refers to the nature of a large order transaction. Block trades are usually carried out through a blockhouse, which is a financial intermediary that aims to help investors with their risk management. Block trading can be seen as a way for traders to buy and sell a high volume of securities without the market prices having a negative impact. Therefore, specially trained staff at blockhouses can help to manage large trade orders of a particular security, while maintaining the price of the security. This way, investors can block trade stock and sell their equities at an agreed date in one go, similar to forward trading​​. There should therefore be less risk of price movements when using this method.

According to the New York Stock Exchange, a block trade should involve at least 10,000 shares within the stock market or $200,000 worth of bonds within the treasuries market, although this figure is generally a lot higher. These shares do not include penny stocks but rather more established or blue chip companies. Investors tend to trade blocks outside of the open market or a centralised exchange, therefore they are categorised as over-the-counter​​ (OTC) products. This helps to stabilise the price of the securities as the open market can often fluctuate in terms of asset value and volume.

Futures trading is a contractual agreement between two parties that a financial product can be bought and sold for a specific price at a set date in the future. This relates to block trading, which follows a similar process but on a much larger scale. Futures trading belongs to the category of financial derivative products, along with forwards and options.

However, these derivatives usually deal with smaller orders of securities, and expand across wider markets outside of equities, including forex, commodities and indices. A block trade using futures or options results in a very distinguishable contract from any other in the same category.

So, how does a block trade work?

For example, if a hedge fund wants to sell 100,000 shares of a company for $10 each, it can either do this in one transaction or through multiple separate transactions. A blockhouse will pair the buyer and seller, negotiate a trade and carry it out to the fairest conclusion.

Therefore, it may decide to sell all 100,000 shares at once to a single buyer, or it may find 10 buyers to purchase 10,000 shares each. These transactions are all completed at the same time. By using a blockhouse, this intends to keep market volatility low and prevent slippage between trades, as financial securities can often change price suddenly.

As we have discussed, block trades are usually reserved for institutional investors in particular, such as hedge funds, pension funds, insurance providers, investment banks and registered brokers. Visit our institutional page to find out more information on eligibility. By choosing a label plan that is suitable for you, we will provide access to many professional trading tools, including block allocation and technical reports to enhance your experience with block trades.

Familiarise yourself with our award-winning online trading platform, Next Generation, by registering for a live account. You will first get access to a demo account so you can practise with £10,000 worth of virtual funds.