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What is a Block House?

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  • Written By: Mary McMahon
  • Edited By: Bronwyn Harris
  • Last Modified Date: 09 November 2016
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A block house is a type of brokerage firm which specializes in block trades, very large trades of shares, stocks, and securities. As a general rule, individual investors do not work with block houses, since their trading is carried out on a much smaller level. Since these firms handle a high volume of daily trading, their activities can have a profound impact on the market, and some market analysts keep an eye on block houses to stay ahead of market trends.

A brokerage firm is a collection of professionals who are certified to handle purchasing, sales, and trades of stock. Generally, people who want to work for brokerage houses must first qualify as stockbrokers, by passing an examination which tests their knowledge of business ethics and the market. After passing, the stockbroker is authorized to handle securities on behalf of individual investors. In most countries, a small number of firms handle the bulk of trading, with less prominent firms picking up the leftovers.

In the case of a block house, the stockbrokers specialize in huge deals, rather than handling a range of trades from big to small. They may handle accounts for other companies, or huge investors like corporations, banks, insurance companies, and academic funds. Generally, a block trade is considered to be more than 10,000 shares of stock, or bonds with a high monetary value.

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Block trading carries several advantages for the organizations which engage it in. In the case of a company which is trying to unload a high volume of shares, it can often fetch a better price in a block trade than it can by releasing these shares to the open market. A sudden flood of available stocks could depress their value, while a privately negotiated block trade run through a block house can keep the value high, ensuring that the seller gets a good deal. Buyers can also get good deals on stocks and securities through a block house because the stocks are generally sold below market value.

Working as a stockbroker in block trades can be intimidating, because these trades are usually counted in the millions of dollars, and they are carried on on behalf of companies with huge portfolios. Making a mistake on a block trade can signal the end of a stockbroker's career, because of the huge stakes involved. To work for a block house, someone must be intelligent, clear headed, and able to assess complex financial markets very quickly.

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