What is a Block Order
A block order is a large order placed for sale or purchase of a large number of securities. Block orders are usually over 10,000 shares of the same stock or $200,000 worth of fixed-income securities. Trades are entered via a special system and the shares are awarded an average price per share, that is the weighted average of all of the prices of the executions as the block is worked by the trader. This is helpful because often block orders are used by institutional investors who are trying to trade large blocks of shares across multiple separate accounts or portfolios. If the pricing is different, it could have adverse effects on the values of the tracking portfolios.
A block order is also known as a "Block Trade."
BREAKING DOWN Block Order
Typically, a 10,000 share order (excluding penny stocks) or $200,000 worth of fixed-income securities would constitute a block order. These trades are often placed by institutional investors running large portfolios. When a trader wants to unload his or her securities quickly they will often sell them at a discount, aptly named a "blockage discount."
Example of a Block Order
For example, Bert and Ernie are portfolio managers for several sleeves of a pension plan. They hold XYZ security in several sleeves of the pension plan and need to sell it. There are about 50,000 shares of XYZ security. They will enter a block trade. The trader will sell the shares of XYZ security over a period of time, then notify Bert and Ernie of the weighted average share price when finished. The weighted average share price is the price that will be awarded to the separate accounts for the security liquidation.