The Block Trade and Real Volume

This is a guest post on trading from Tusk Trader (check out the newly launched site: www.TuskFund.com), an experienced Bay Street trader who will be writing here until Tusk’s own blog is set up. Tusk had a front row seat to the twists, turns, and almost collapse of our capital market systems a few years ago and provides a unique perspective you won’t find anywhere else. For most people, financial literacy is the elephant in the room. Let Tusk Trader help change that. If you are on twitter, make sure to follow Tusk at @TuskTrader

Trading volume is looked at often, but do you consider the effect of block trades?

Traders love volatility

It is well known that traders love volume. We do. Traders are some of the few market participants who are able to react quickly enough to a surprise market move, and profit from it. They can hit the sell or buy key before the reporter has finished stating the market rattling sentence. Participants, who have a job that involves more calculated fundamental analysis, will be trying to analyze the new information and come up with a plan. Traders are not making a decision about where a stock will close at the end of the quarter or even the end of the day. They are reacting to surprising news by making money off of a surprised market. If strong negative news comes out on a stock, a trader might go short, and then long once it feels oversold. Direction is irrelevant. A market can take some time to react to a new piece of information and to come to a consensus on what it means. The process of market participants coming to a consensus is what creates the volatility. Volatility on its own though, does not make a great trading environment. It’s like staring at a 14-ounce piece of raw rib eye on the counter. So much potential, but that meat needs to be placed in the correct environment to bring about the desired result. (In my case, that would be a smoking hot 600 degree grill until the outside is charred and the inside still juicy and red.)

The same is true for volatility. A trader needs volume, like the rib eye needs some heat. The better the volume, the better the trading environment. The reported volume is only one indication of the trading volume situation. Regular reported volume usually automatically includes block trades.

Block Trade

A block trade is when an institution trades a large volume of shares all at once, either with themselves (a cross) or with another institution. A block trade is a pre-arranged trade. The price, timing and participants are all set before the trade happens. To be considered a block trade, it must have at least 10,000 shares involved. As a trader, it is important to separate block trading volume from normal volume traded on a stock. If a particular stock trades 1 millions shares in a day, but 600,000 of the shares traded are from one block trade, it can be a key piece of information. Regular trading volume is what creates the access and execution potential for a trader, not the block trades. Traders need to be able to participate in a stock move and to do that, they need to be able to get in and out of trade. They need real trading volume. Knowing the difference between real volume and block volume will help you on your quest for a profitable trade.

Thanks Tusk. Make sure to check out the site: www.TuskFund.com or follow Tusk Trader on twitter: @tusktrader

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Showing 5 comments
  • Chris

    I was hoping you would shed some light on how to determine whether the volume is from a block trade or not?

  • Tusk Trader

    Hi Chris,

    It depends where you are receiving your total volume information from. If you are a person who trades their own account from home, it will be available from your trading platform provider. Some platforms automatically report block trades and regular trading separately, some do not. If you do not see it listed as an option, I would just call the help line and ask them the settings you need to have to display that information.

    If you are doing research from home, and not using a trading platform, or service provider, the Financial Post does a very good job reporting block trades. Go to the Market Data area and you will see it listed under the Market Indicators section. You will have to make note of total volume in the stock you are watching, then go there to see what the block volume was, however it is free market data. I am a big fan of free information, even if it takes a few more clicks.

    A secondary free place to look is the TMX site.

    It does an okay job of reporting some block trading information. Be careful though. Do not confuse the lists of which firms did the most block trades (ie: TD securities posting the most block trades on Canadian stocks all together) with the listed companies that had the most block trades occur on their stock (ie: ABC had the most block trades completed by volume that day)

    Overall, the Financial Post does the best job I think.

    I hope that helps.

    Tusk

  • Chris

    Thanks! That helps a lot.

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