A block trade is a large transaction involving a substantial quantity of securities that is executed outside the open market. This is done to minimize the impact on the security’s price. These trades are typically negotiated directly between buyers and sellers, often with the assistance of a broker or trading desk.

Size: Block trades usually involve a significant amount of securities, often worth millions of dollars. The specific size that qualifies as a block trade can vary by market and security. However, it is generally a large enough quantity that executing it on the open market could cause significant price fluctuations.

Execution: To execute a block trade, the parties involved negotiate the terms of the trade, including the price and quantity, privately. The trade is then executed either directly between the parties or through a broker, often through a private agreement or an alternative trading system.

Purpose: Block trades are used by institutional investors, such as mutual funds or pension funds, to buy or sell large amounts of stock without causing a significant disruption in the market price. If such large orders were placed through regular exchanges, they could lead to significant price swings due to the large volume of shares being bought or sold.

Disclosure: Block trades are usually reported to the market after they are executed. The details of the trade, including the price and volume, are made public to ensure transparency, but the negotiation and execution are done in a way that minimizes market impact.

Overall, block trades help manage large transactions efficiently while aiming to reduce the adverse effects on market prices.

Lauren Hua is a private client adviser at Fairmont Equities.

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