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Block Trade

A block trade, also known as a block order or a block trade agreement, is a large transaction which is negotiated privately and separately from the open market. It is mainly used to minimize the effect of large trades on the market, since such trades can create sudden large changes in price. In order to lessen this effect, a block trade is split into multiple pieces, each of which is then dealt with through different brokers.

The block trades are mainly used by institutional investors and large investors, who want to make large buys or sells without creating a great deal of public awareness. By opting for a block trade they can negotiate the price they want and order the total amount in the market without having to worry about it moving against them.

The execution of block trades is similar to the execution of single large trades, but with a higher degree of privacy. In order to complete a block trade, both parties have to agree on prices and negotiate the trade with the assistance of a broker. Block trades don't have to be executed on the same day and they don't have to be completed in one piece. It is possible, for example, to agree a price for 1000 shares and execute the trade over a period of two days for instance, by executing 500 shares a day.

Block trades can also be conducted outside the exchanges and over-the-counter, where private block trading agreements between two parties are negotiated. This kind of block trading is done electronically, keeping the trading process more anonymous and secure.

In conclusion, block trades are very useful for large investors who are making a large purchase and don't want to affect the market. By splitting the trade into multiple smaller orders and executing it with different brokers, the overall effect of the trade is minimized. Furthermore, block trades conducted outside the exchanges via private agreements offer a high degree of privacy and security.

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