What is a Block Trade and How to Get Started - A Guide to Understanding the Basics

In the Thai financial market, Block Trade is a service offered by brokers that allows investors to open positions in contracts referencing large-cap stocks with high liquidity, enabling profit from high leverage without investing the full amount.

Understanding Block Trade More Clearly - The Original Problem and the Solution

Single Stock Future (SSF) is a derivative contract referencing the common stock price on the Thai stock exchange. However, the problem is that trading volume is very low, resulting in poor prices for investors despite the massive trading volume of the underlying stocks on the main board.

To address this issue, securities companies have created Block Trade is a service where brokers act as counterparty to clients, using the current trading board price as the reference price. The result is that investors can profit from higher leverage levels with better liquidity than general SSFs.

Leverage (Leverage) - The Key to Block Trade

Block Trade is a product that allows leverage from 2 to 20 times. For example, if you want to buy PTT shares worth 3,500,000 THB but think it’s expensive, you can put up only 178,500 THB (5%) as collateral and control the full contract value.

This is the charm of Block Trade is the option to increase purchasing power multiple times with limited capital.

Advantages of Trading Block Trade

1. High Returns with Leverage

By using less capital but controlling more assets, profits expand accordingly. For example, if PTT stock rises from 35 to 37 THB (+5.7%), with a leverage of 19.6 times, profit will be +110% of the collateral.

2. Profit from Both Upward and Downward Trends

Open long (Long) or short (Short) positions as desired, without waiting for prices to rise like in actual stock holdings.

3. Lower Fees

Block Trade fees are 0.10% of the contract value, whereas real stock trading fees are 0.15-0.25%. Choosing Block Trade can save up to half the cost.

Risks and Precautions

1. Risk of Margin Calls (Margin Call)

If the price drops below the Maintenance Margin (MM 70% of collateral), the account will be called to add collateral. If not, the system will forcibly sell the position.

2. Requires a Lump Sum Investment

Brokers often set a minimum of 500,000 - 1,000,000 THB to open a Block Trade account. Not suitable for small capital investors.

3. Additional Interest Based on Holding Period

Besides fees, interest is charged based on the number of days the contract is held.

4. Risk of Contract Expiry

Block Trade contracts last as long as SSFs, which expire quarterly. If the stock undergoes corporate actions (XD, XW, etc.), the position must be closed before the deadline.

5. Continuous Position Management Needed

Unlike stock holdings, which can be accumulated, Block Trade requires constant monitoring of collateral to prevent falling below dangerous levels.

Block Trade vs Single Stock Future - What’s the Difference?

Although Block Trade is similar to SSF in many ways, there are differences:

Block Trade vs CFD - Which One to Choose?

CFD (Contract for Difference) is also a derivative with higher leverage. Often, investors choose between Block Trade is a Thai option or global CFD.

Block Trade:

• Minimum contract size 20-1,000 contracts depending on broker
• Leverage up to 20x
• Interest charged similarly to SSF
• Only referencing Thai stocks
• Fee 0.10%

CFD:

• Can trade with very small amounts (Lot as low as 0.01)
• Leverage up to 1:200
• Overnight (Interest) varies
• Can trade foreign stocks, indices, commodities
• Easy and quick account opening (3 minutes)

Summary: CFD is suitable for those seeking flexibility and low investment, while Block Trade is ideal for official Thai stock trading with high liquidity.

How to Start Trading Block Trade

Step 1: Open a Derivatives Account

A Block Trade account is a separate derivatives account from a regular stock trading account. Prepare documents:

• ID card copy (Certified)
• Bank statement copy (Certified)
• Financial statement (Past 3-6 months) with a value of 200,000-500,000 THB or more

Account approval takes 3-7 business days.

Step 2: Submit Orders

Contact broker staff to agree on price and volume. Block Trade is a product that must be ordered through staff only; online orders are not accepted.

Note: Orders must be submitted before 16:00 each trading day.

Step 3: Manage Collateral

Initial Margin (Initial Margin) is set at 100% of the broker’s required rate.

Example: Open 100 PTT contracts at 35 THB = 3,500,000 THB. Collateral required is 178,500 THB.

If the price drops below the Maintenance Margin (70% of collateral), a margin call will be issued.

Step 4: Calculate Profit and Loss

Profit/Loss = (Closing Price - Opening Price) × Number of contracts × Contract size (1,000 THB)

Example: Buy 100 PTT contracts at 35 THB, close at 37 THB = (37-35) × 100 × 1,000 = 200,000 THB profit (and equal to 112% of collateral 178,500 THB)

How to Calculate Block Trade Trading Costs

Fee = [(Stock price × number of contracts × size × 0.10%) + market fee] × 1.07 (VAT)

Example: 100 contracts at 35 THB = [(35 × 100 × 1,000 × 0.001) + 51] × 1.07 = 3,799.57 THB

Interest for holding the contract = (Price × number of contracts × size) × (Number of days / 365) × interest rate

Interest rates vary by broker, with minimum calculation periods of 1-3 days.

Frequently Asked Questions

Does Block Trade receive dividends?
Yes, but only if holding a Long position before the XD date, since the broker must buy actual shares as collateral, paying back about 90-100% of dividends.

What is the minimum number of contracts for Block Trade?
Varies by broker, but generally 20-1,000 contracts. Check with your chosen broker.

Is Block Trade different from TFEX?
TFEX (Thailand Futures Exchange) often refers to Equity Index Futures based on SET50, which differs from Block Trade in that:

• TFEX contracts are matched with other investors in the market (and can be ordered online).

Summary

Block Trade is a powerful tool for those wanting to trade large Thai stocks with high leverage and good liquidity. The advantages include high leverage, low fees, and profit opportunities in both bullish and bearish markets.

However, remember that Block Trade is a high-risk product. Sufficient capital, understanding of risks, and continuous monitoring of collateral are essential.

Trading Block Trade through reputable brokers and studying thoroughly before investing will help you trade confidently and safely.