Reviewed by Oct 05, 2020| Updated on
Block order refers to the placing of order either for a sale or a purchase of a huge number of securities. In contrast to retail trades for a small quantity of shares, such as few hundreds or thousands, a block order consists of orders, such as few lakhs to few crore shares in number. Block orders are separately identified and also reported as part of large trades in stock.
The purchase transactions, in this case, are likely to be spread over several days such that they do not impact the regular trade in the stock market. Each block order is also called a block trade. The orders may be for stocks or fixed-income securities.
A block order transaction can be matched through an intermediary or a dark pool. In the case of smaller quantities, the routing can happen through iceberg orders for taking advantage of any current liquidity. Block orders may be placed by anyone, a single large shareholder, an institutional investor, or portfolio investors.
The stocks bought and sold in a block order can be blue chips or penny stocks. In general, penny stocks often see large deals due to their lower market values. The trading may be for a premium to the existing market price or at a discount. In case a trader or investor desires to sell at the market price to realise money, it may be a discount.
Block orders are often methods employed to hold a large quantity in investment and then play around with the price basis of the holding. Such an investor may push up the price of the stock in case the block deal was at a premium to the market price. The increase in demand creates favourable conditions for the investor.
In the stock market, block orders are placed through a specific system, or through an intermediary, and the fixing of the price is at an average based on the weighted average price of all the trade executions necessary to complete the order. The choice of order is with the investor. They can control the quantities they want to input and process and issue directions to the intermediary accordingly.