DEFINITION of 'Blockage Discount'

A blockage discount is the difference between the market value of a traded security and its sale price when a large block trade occurs. The discount is justified because the block is so large that it may not be sold without depressing the value of the stock. Typically, large block trades involve institutional investors. A blockage discount is negotiated by the institutional investors who are involved.

BREAKING DOWN 'Blockage Discount'

A block trade is defined as 10,000 shares, or in the bond market, securities valued over $200,000. Traders usually want to unload all of the securities quickly but are often inhibited by low market volume. If volume is low, a large sale holds the potential to significantly depress the price. So, recognizing that selling the entire block in a hasty manner in the market would cause the price to fall anyway, a trader will sell the assets at a discount to another institutional investor, thus completing the trade quickly. Alternatively, the trader could sell the block in small amounts over an extended period. But this also presents risks, given that the price of the security may decline anyway for reasons unrelated to the block sale.

  1. Block Order

    A block order is a large order placed for sale or purchase of ...
  2. Block Trade

    A block trade is an order or trade for sale or purchase of a ...
  3. Block

    A block is a large amount of the same security bought or sold ...
  4. Block Height

    Block Height indicates the overall length of a blockchain.
  5. Block Reward

    Bitcoin block rewards are the new bitcoins that are awarded by ...
  6. Distribution Stock

    Distribution stock refers to a large block of a security that ...
Related Articles
  1. Tech

    Bitcoin Blockchain Stopped Producing Blocks for Hour, Price Climbed 4%

    The BTC blockchain stopped the production of blocks for 64 minutes earlier this week, to unexpected results.
  2. Investing

    H&R Block Stock: Time to Consider Selling?

    The tax prep company's shares are up 33.6% YTD. Is it time to take gains, or do fundamentals support the new valuation?
  3. Trading

    Bitcoin Cash: The New King of Cryptocurrency?

    Investors are wondering if the popularity of Bitcoin Cash poses a serious threat to the Bitcoin throne.
  4. Trading

    What is the Difference Between the two?

    The differences between retail and institutional traders lie in the size of the trade, level of sophistication, and the speed of transactions.
  5. Tech

    Winklevoss Gemini Fund to Offer Bitcoin, Ethereum Block Trading

    The digital asset exchange will allow investors to place orders outside the project's order book.
  6. Retirement

    Senior Discounts Alert: National Parks Pass Rises Aug. 28

    First, Social Security rose a measly 0.3%. Now, the national parks lifetime pass is going up 8 times. Yet another reason to save with senior discounts.
  7. Small Business

    Companies That Offer Unique Employee Discounts

    These companies offer employees great discounts and unique incentives you don't find with your average employer.
  8. Tech

    How Bitcoin Works

    Miners, hashes, keys, cold storage, blocks - it's confusing. We can help you understand how bitcoin works.
  9. Small Business

    Capital Budgeting: Which is Better, IRR or NPV?

    Using internal rate of return and net present value for capital budgeting evaluations often end in the same result. But there are times when using NPV to discount cash flows makes more sense.
  10. Investing

    H&R Block Offers Interest-Free Loans to Tax Filers

    The Financial Industry Regulatory Authority, or FINRA, has deemed tax refund anticipation loans as being akin to payday loans. Many tax preparation companies offer filers the option of receiving ...
  1. How does a block chain prevent double-spending of Bitcoins?

    Find out how double-spending is prevented in the Bitcoin server and how transactions are posted and verified on the Bitcoin ... Read Answer >>
  2. How is terminal value discounted?

    Find out why investors use the terminal value, why the terminal value is discounted to the present day, and how it relates ... Read Answer >>
  3. What does "squeezing the shorts" mean?

    "Squeezing the shorts" refers to a questionable practice of taking advantage of a heavily shorted stock by buying up large ... Read Answer >>
Trading Center