A block trade in stocks is the sale or purchase of bulk shares in a single transaction. Generally, these trades account for a minimum of 10,000 shares or securities worth Rs 1 crore. Block trades are mainly executed by institutional investors, like mutual funds, pension funds, and large banks, so they can buy or sell stock in bulk without significantly impacting the market price.
How Block Trades Work
A block trade typically involves arranging the transaction privately between the buyer and the seller through a broker or trading venue. Such stock trades on the block are not conducted through stock exchanges. Blocking aims to allow a transaction to take place with little price change.
Advantages of Block Trading
Here are some of the key advantages of block trading:
- Minimising Market Impact: Since block trades are conducted privately, they prevent the stock price from fluctuating too much during the transaction.
- Efficient Execution: Large trades can be completed quickly, allowing investors to meet their goals without delay.
- Reduced Risk: Block trades can be less risky for buyers and sellers because they do not affect the open market.
Disadvantages of Block Trading
However, block trades can also have some drawbacks:
- Less Transparency: Block trades happen off the public exchange so that they can be less transparent for the market.
- Higher Costs: Investors may pay higher transaction fees to execute large trades privately.
Conclusion
Block trading refers to trading stocks without disturbing the market. It enables large amounts of trading without causing noticeable price volatility. Block trading has advantages and disadvantages. The merits include reduced risk and market price movements from bulk trading. Disadvantages include increased costs and reduced transparency in market reporting.