Today a stock i know of had a bid price of 1.38 and an ask price of?

Question

1.40. However right before the closing bell, a 3 million block was sold at 1.34. i thought sells were executed at the bid price so shouldn't it been sold at 1.38 or is it because the seller's ask was better lower than the current bid so it was filled regardless. Furthermore why would anyone sell 4 cents lower than the bid. My guess is it was such a large chunk and he wanted to sell it all at once instead of in dribs and drabs so lowered his ask price, is my assumption correct?

Answer 1

Could be auction, put through, cross, block trade, VWAP, protected trade. You don't always have to deal at the market, at least you don't in UK. Can you see the bargain conditions? Do you have them in US?

Answer 2

Hey,

Usually, when huge blocks of stock like these are trading hands, this is the work of the large institutional brokerage firms.

Obviously, somebody or some fund wants to unload $4 million worth of this stock fast, but if they announced that they wanted to do this very thing, then all the buyers would back off and up their ask price, making the price go higher.

So, what usually happens in these situations is that the big brokerage firms start asking around to find a buyer who is willing to buy all of the shares at a fair price.

Once they do, they get the trade in the system and it registers as a huge block, traded at the agreed upon price, which is usually close to what the bid-ask prices are, but not exactly...

It's almost like it's a game of chicken when it comes to these huge blocks of trades.  If you've got two big investors (one who want to sell 3 million shares and another one willing to buy them...) and it were all out in the open -- it's basically the first one who blinks is the huge loser...

And the whole market would move based upon what these two investors did in their game of chicken...

Personally, I'd like to see many more transactions from many more independent investors -- that would make things more understandable and take some power away from the big Wall Street firms to move the market (and take us all with it...)

So, why would someone drop their ask price to 4 cents lower than current bid price? -- basically, that was the price needed for the buyer to accept all 3 million shares.  I think your reasoning is right on this one...

Hope this helps, and good luck!