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        What is a Block Trade?

        Views 98722023.08.09

        Key Takeaways

        A block trade is a large, privately negotiated securities transaction.

        A block trade is executed outside of the open markets.

        Generally speaking, a block trade would offer the buyer a discount to the market price.

        Understanding block trade

        A block trade is a bulk-sized, privately negotiated securities transaction.

        To avoid negative impact on the securities' market prices, block trades are executed outside of the open markets.

        "Block trading" services — also known as "upstairs trading desks" — are offered to institutional investors by broker-dealers.

        A block trade is defined by the New York Stock Exchange and the Nasdaq as a trade of at least 10,000 shares or worth more than $200,000.

        Other shareholders usually would not be informed of the transaction until it's been publicly released.

        The privately negotiated prices among institutional investors in block trading can serve as valuable reference for analysts or individual investors to evaluate the stock prices. This information has value because block trading prices imply what price those larger shareholders are willing to accept, and avoids data skewing by ignoring small trades.

        Example of a block trade

        For instance, imagine that hedge fund Y holds 100,000 shares of Company X and wants to sell all of them at the current market price of $13. Company X now has a relatively small market cap of nearly 8 million. The transaction will likely push down the price significantly if hedge fund Y pends a selling order on the open market because the amount is large enough to affect the supply and demand of Company X stock and then push the price down sharply.

        To avoid this, hedge fund Y could arrange for a block trade with another institutional investor willing to buy all 100,000 shares via an intermediate.

        Generally speaking, block trading could benefit both parties: the selling fund gets a more attractive purchase price, while the purchasing company can negotiate a discount off the market rates.

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        This presentation is for informational and educational use only and is not a recommendation or endorsement of any particular investment or investment strategy. Investment information provided in this content is general in nature, strictly for illustrative purposes, and may not be appropriate for all investors. It is provided without respect to individual investors’ financial sophistication, financial situation, investment objectives, investing time horizon, or risk tolerance. You should consider the appropriateness of this information having regard to your relevant personal circumstances before making any investment decisions. Past investment performance does not indicate or guarantee future success. Returns will vary, and all investments carry risks, including loss of principal. Moomoo makes no representation or warranty as to its adequacy, completeness, accuracy or timeliness for any particular purpose of the above content.

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