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Finance: What is a Block Trade? 22 Views
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Description:
What is a Block Trade? A Block Trade just means that a very big number of securities are being traded, either bought or sold. The group of securities is referred to as a block.
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Transcript
- 00:00
Finance a la shmoop.. what is a block trade? yeah you think this was the yellow Marvin [A monopoly board]
- 00:09
Gardens trio bartered for the green Pennsylvania Avenue set but it's not
- 00:15
instead a block trade happens when a huge, you know block yes clever naming
- 00:21
there of shares needs to get sold think company founder just got divorced and [Man and woman sitting on a sofa]
- 00:27
old husband wants the dough fast she just wants to get rid of him you know
Full Transcript
- 00:31
lose 185 pounds so of her 28 million shares she or rather her bank or brokers
- 00:37
put together a group of a half a dozen buyers who then buy the stock in a clean [Stock is dusted]
- 00:41
block trade there's a strange paradigm here sometimes companies shares are
- 00:46
thinly traded or not liquid meaning that there isn't a ton of volume every day in
- 00:51
the stock and large institutions wanna buy in big like to the tune of 5 million [Big institutions buy stock]
- 00:57
shares but if they buy 50,000 shares a day in the market well they'll likely
- 01:01
move the stock from say 18 bucks a share to 25 bucks a share by the time they're
- 01:06
done buying so sometimes supply of block trades is constrained and the trade
- 01:12
usually with price negotiated well beforehand goes off at a premium to
- 01:17
where it was regularly trading like that eighteen dollar figure maybe implies a
- 01:22
block trade that happens at 20 bucks the seller is usually happy because if they
- 01:27
dump the shares at fifty thousand a day into the market while they'd likely [Dump truck dumps stocks on the floor]
- 01:31
drive down the stock price to fifteen dollars or less in the process got it?
- 01:35
and this way they got a $2 premium above that 18 bucks 20 minus eighteen two
- 01:40
dollars there yeah and the institution is happy because now they own the [Institution smiling]
- 01:44
however many millions of shares that they own at a twenty dollar base price
- 01:49
instead of something likely much higher if they've gone into the market and
- 01:52
bought em, so that's when supply is constrained in a thinly traded low
- 01:56
volume in demand stock much more common as a block trade where there's a whole
- 02:00
lot of supply coming on board and not nearly the demand of buyers or investors
- 02:05
to take over the stock so it trades at a meaningful discount to whatever price it
- 02:09
was trading at like in the eighteen dollar a share case well maybe that
- 02:12
block trade happens at 17.20 or 16.50 or
- 02:16
thereabout so that's a block trade and here's a blockhead yeah ask your parents [Blockhead figure appears]
- 02:20
if you don't get the reference here...
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