MANY doors are open to 18-year-olds in Singapore these days, and one of them is share trading. They can buy and sell shares - unless they are an undischarged bankrupt, of course.
PRICING PRESSURE
In choosing a brokerage, look at its reputation, history, and quality of service provided in terms of research, advice and accessibility to trading representatives or remisiers
Last week, we introduced equities as a form of investment and explored different types of shares.
This week, we roll up our sleeves and talk about investing proper.
Step 1: Opening a CDP Account
Before investing, you need to familiarise yourself with the Central Depository, or CDP. CDP provides depository, clearing and book-entry settlement services for securities traded on the Singapore Exchange (SGX).
To make a long story short, you need to open a CDP account before you can trade in securities listed on SGX. Shares you have bought from SGX will be credited to the CDP account.
To open a CDP account, you can either approach CDP at SGX centre, or apply at your chosen stockbroking firm. You will need the following: your identification card (for citizens and permanent residents) or passport (for non-Singaporeans) and Malaysian identification card for Malaysians, as well as your work and re-entry permit (for foreigners and permanent residents working in Singapore).
Step 2: Choosing a stock broking firm
You will next need to open a trading account with a stock broking firm. All stockbrokers should be members of SGX-ST (the list can be found on the SGX website).
A trading account allows you to trade shares in the stock market. To sign up for one, you will need to sign your trading application form in the presence of an authorised officer at the stockbroking firm.
In addition to the documents that you brought to open your CDP account, you will need your bank account number, CPF investment account number (if applicable), and CDP account number (if applicable).
Then, simply complete a linkage form obtained from the stockbroking firm to link your CDP account with your trading account.
What should you look out for when picking a stockbroker?
Chong Kek Weng, senior lecturer at Ngee Ann Polytechnic's School of Business & Accountancy, says: 'Important considerations will be the reputation, history of the stockbroking firm, and quality of service provided in terms of research, advice and accessibility to the trading representatives or remisiers.
'It may be beneficial to choose a firm that is able to provide multiple channels to access your online trading account and to trade. It is also advantageous if the firm is able to offer you opportunities to trade on other exchanges.
'A secondary consideration may be the firm's commitment to investor education of retail clients,' he adds.
Taking note of costs
While there is no fee for opening a CDP or trading account, Mr Chong warns that there are fees one should be aware of. 'You only pay when you transact to buy or sell shares. The transaction cost will include brokerage commission, depending on brokerage firm and transaction volume, CDP fees (0.04-0.05 per cent of the contract value, depending on the type of instruments traded) and the 7 per cent goods and services tax.'
'But what if I intend to trade without the advice of a broker?' you may ask. Brokers are, fortunately or unfortunately, the individual investor's direct link to trading. Although technology and the Internet has made it easier for individual investors to take control of their portfolios, the basic rule still applies: you need a broker if you want to trade.
Step 3: Deciding on a trading platform
Whichever stockbrokerage you choose, you should be able to trade using a variety of platforms - broker assisted, Internet trading, or mobile trading.
Broker assisted
When you sign up with a brokerage firm, you will be assigned a broker. You can approach your broker for advice, as well as task them with buying and/or selling orders. Broker assisted trading commission is generally 0.5 per cent of transacted value for below $50,000; 0.4 per cent of transacted value for trades between $50,000 and $100,000; and 0.25 per cent of transacted value above $100,000, according to Mr Chong.
Internet trading
If you want to be in control of your trades, Internet trading might be the way to go. In Internet trading, you need to input your own buy/sell orders.
The brokerage commission for Internet transactions is generally about 0.275 per cent of transacted value.
Mobile trading
With the advent of, and growing popularity of smartphones, many brokerages have applications created for the technologically savvy trader. This again puts greater control over the portfolio in the investor's hands.
Jargon you might want to know before placing orders . . .
Blue chips: These are listed companies with a good track record of steady profit growth and dividend payments, good management and sound reputation.
Limit order: An order to transact at a specified price. This guarantees the price at which you will buy or sell a security.
Market order: An order that requires immediate execution at the best price available.
Stop order: A market order that kicks in when a specified level has been reached. This may be a stop-loss or stop-limit. The exact price cannot be guaranteed, but this can be a good way to protect your downside.
. . . and some fun stuff
Stalking-horse bid: An initial bid on a bankrupt company's assets from an interested buyer chosen by the bankrupt company. This basically allows the distressed company to set the bar so that other bidders can't low-ball the purchase price.
Dead cat bounce: A temporary recovery from a prolonged decline or bear market, after which the market continues to fall.
Next week, we look at some strategies you can employ when trading and learn why developing nerves of steel is important in the trade.
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