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Ethics/Morals Videos 193 videos

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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

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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