What is Block Trade? A Beginner's Guide Before Trading

The Necessity of Understanding Block Trade

If you're interested in the Thai stock market and looking for more flexible ways to profit, the term Block Trade may become increasingly familiar to you. This product has gained popularity among traders over the past year, with trading volume expanding noticeably. If you still don't fully understand what a Block Trade is, let's delve deeper into this product.

What is a Block Trade - Basic Definition

A Block Trade is a service connecting traders with brokers that allows you to trade Single Stock Futures (SSF) with higher liquidity, instead of trading directly on TFEX, which can be difficult.

Through its mechanism, the broker acts as a counterparty for you, using the current stock price on the trading board as a reference. This enables you to open large positions without worrying about insufficient trading volume.

The problem that Block Trade solves: Some stocks' Single Stock Futures have very low trading volume, making it difficult to buy or sell at favorable prices. Even stocks with huge trading volume can face this issue, so Block Trade was introduced to address these problems.

Advantages and Risks of Trading Block Trade

Advantages - Why it’s interesting

1. Greater Leverage You can control a large amount of money with less capital. Leverage can be set from 2 to 20 times. For example, to trade 100 contracts of PTT at 35 baht, you only need to put up 178,500 baht as collateral instead of 3,500,000 baht. The remaining funds can be invested elsewhere.

2. Profit in Both Bull and Bear Markets You can open a (Long) position to profit from rising prices or a (Short) position to profit from falling prices. This increases your profit opportunities even during market downturns.

3. Lower Fees than Buying Stocks The fee for Block Trade is 0.10% of the contract value, compared to 0.15%-0.25% for actual stock purchases. You can save up to half on fees.

Risks - Things to be cautious about

1. Requires a large minimum investment Although leverage reduces the amount of money needed, most brokers still require a minimum investment of 500,000 to 1,000,000 baht to trade Block Trades.

2. Complex account opening process and time-consuming You need to prepare financial documents such as statements, and approval takes 3-7 business days.

3. Higher risk than regular stock trading You may face a (Margin Call) or be forced to (Force Sell). There are also risks from contract expiration and corporate actions that may force you to close positions early.

4. Additional interest costs Besides fees, you also pay interest based on the holding period, which adds to your costs and affects your profitability.

How to Start Trading Block Trade

Step 1: Open a Derivatives Account

A Block Trade account must be a Derivatives account separate from your stock trading account (Stock). If you only have a stock account, you need to open a Derivatives account as well.

Documents required:

• Copy of ID card (Certified true copy)
• Copy of bank statement (Certified true copy)
• Financial statement (Financial Statement) for the past 3-6 months, with a balance of 200,000-500,000 baht

Approval time: 3-7 business days

Step 2: Contact an officer and submit orders

Unlike stock trading, Block Trade orders must be submitted through a broker’s officer only; online platforms cannot be used.

Order submission restrictions:

• Orders must be submitted before 16:00 each trading day
• Cannot use ATO (Open) or ATC (Close) prices, as this may cause price deviations
• Minimum contract sizes apply, e.g., PTT must be at least 100 contracts, ADVANC at least 20 contracts

Step 3: Calculate collateral and maintain positions

Example calculation:

• Open a Block Trade of PTT 100 contracts at 35 baht
• Contract value = 100 × 35 × 1,000 = 3,500,000 baht
• Initial margin (IM) = 178,500 baht (at 5.1%)

Maintaining margin:

• If margin drops below Maintenance Margin (MM) = 70% of IM, i.e., 124,950 baht, you must top up to 178,500 baht
• If margin drops below Force Margin (FM) = 30% of IM, you will be forced to sell immediately

Step 4: Calculate profit and loss

Example:

• Buy PTT 100 contracts at 35 baht (value 3,500,000 baht)
• Close at 37 baht (value 3,700,000 baht)
• Profit = 200,000 baht (112% return on the 178,500 baht collateral)

Compared to directly buying PTT stock (with 3,500,000 baht), the profit is only about 5.7%.

Block Trade vs. Other Products

Block Trade vs. Direct Stock Purchase

| Feature | Block Trade | Direct Stock Purchase | |--------|------------|------------| | Fees | 0.10% | 0.15%-0.25% | | Leverage | 2-20x | None | | Dividends | 90-100% | 100% | | Shareholder Meeting Rights | No | Yes | | Risk | High | Low |

Block Trade vs. Single Stock Future (SSF)

Similarities:

• Both reference large Thai stocks
• Both use collateral systems and leverage

Differences:

• Order submission: Block Trade via broker’s officer only; SSF can be ordered online
• Interest: Block Trade incurs interest; SSF does not
• Dividends: Block Trade receives dividends; SSF does not
• Counterparty: Block Trade’s counterparty is the broker; SSF is matched with other traders

Block Trade vs. CFD

CFD offers more flexibility than Block Trade:

• Leverage: CFD up to 1:200, while Block Trade is 2-20x
• Minimum trading size: CFD starts from 0.01 Lot, which is very small; Block Trade minimums are higher
• Product variety: CFD covers stocks, indices, commodities, Forex (, while Block Trade only involves large Thai stocks
• Account opening: CFD is much faster )minimum 3 minutes(; Block Trade takes 3-7 days

Cost of Trading Block Trade

) Contract Opening/Closing Fees

Formula: [ Stock Price × Number of Contracts × Contract Size × 0.10% ### + Market Fee ] × 1.07

Example: Opening a Block Trade of 100 contracts at 35 baht:

• = [ 35 × 100 × 1,000 × 0.10% ( + 51 ] × 1.07
• = [ 3,500 + 51 ] × 1.07
• = 3,799.57 baht

) Interest Cost for Holding the Contract

Formula: ( Stock Price × Number of Contracts × Contract Size ) × Number of Holding Days ÷ 365 ### × Interest Rate

Interest is calculated based on the duration of the contract, with minimum periods such as 1 or 3 days, depending on the broker’s policy.

Frequently Asked Questions

How is TFEX different from Block Trade?

TFEX (Thailand Futures Exchange) is a marketplace that consolidates all derivatives products, including Equity Index Futures (SET50), Single Stock Futures, and Options. Block Trade, on the other hand, is a service specifically for Single Stock Futures where the broker is the counterparty, making trading easier and faster.

Does Block Trade pay dividends?

Yes. If you hold a Long position before the ex-dividend date, you will receive 90-100% of the dividends paid out, as the broker must buy the same number of shares as collateral.

What is the minimum number of contracts for Block Trade?

It depends on each broker’s conditions, ranging from 20 to 1,000 contracts. Some stocks have lower minimums, others higher. Check with your broker for precise details.

Summary

Block Trade is a product suitable for traders who want to leverage their positions to trade large Thai stocks more easily, with high liquidity and lower fees than regular stock trading. However, it also involves higher risks. Therefore, you must understand the mechanism, costs, and proper collateral management before trading.