What does a blockage discount refer to in trading?

A blockage discount refers to a situation in trading where a large quantity of securities is sold, which can lead to a decline in the price of those securities because the market is unable to absorb the large volume at current prices without taking a discount. When large blocks of securities are put on the market, buyers may only be willing to purchase them at a lower price to compensate for the risk and the illiquidity associated with such large transactions. This action is often due to the lack of immediate buyers for all those shares, which means the seller may have to accept a lower price to facilitate the sale quickly without significantly impacting the market over the long run.

In contrast, selling all securities at a premium implies a scenario where the seller is able to get higher prices, which does not align with the concept of a blockage discount. Purchasing large volumes of shares and holding securities for long-term gain do not directly relate to the concept of blockage discounts, as they focus more on investment strategy rather than the impact of selling on price.