However, when a large institutional investor seeks to buy or sell a large chunk of stock, or a block of stock, the sheer size of the order involves additional facilitation. A buy order for 200,000 shares of IBM stock, for instance, would not easily be accomplished without a block trader. At any given moment, only so much stock is available for sale, and to buy a large quantity would drive the price up in the market (to entice more sellers into the market to sell).
For a NYSE stock, the process of block trading is similar to that of any small buy or sell order. The difference is that a small trade arrives electronically to the specialist on the floor of the exchange, while a block trade runs through a floor broker, who then hand-delivers the order to the specialist. The style of a block trade also differs, depending on the client's wishes. Some block trades are done at the market and some block trades involve working the order.
- At the market. Say Fidelity wishes to buy 200,000 shares of IBM, and they first contact the block trader at an investment bank. If Fidelity believed that IBM stock was moving up, they would indicate that the purchase of the shares should occur at the market. In this case, the trader would call the floor broker (in reality, he contacts the floor broker's clerk), to tell him or her to buy the next available 200,000 shares of IBM. The clerk delivers the ticket to the floor broker, who then takes it to the specialist dealing in IBM stock. Again, the specialist acts as an auctioneer, matching sellers to the IBM buyer. Once the floor broker accumulates the entire amount of stock, likely from many sellers, his or her clerk is sent back to the phones to call back the trader. The final trading price is a weighted average of all of the purchase prices from the individual sellers.
- Working the order. Alternately, if Fidelity believes that IBM was going to bounce around in price, they might ask the trader to work the order in order to hopefully get a better price than what is currently in the market. The trader then would call the floor broker and indicate that he or she should work at finding as low a price as possible. In this case, the floor broker might linger at the IBM trading post, watching for sell orders to come in, hoping to accumulate the shares at as low a price as possible.
Small trades placed through brokers (often called retail trades) require a few simple entries into a computer. In these cases, traders record the exchange of a few hundred shares or a few thousand shares, and the trade happens with a few swift keystrokes.