Here’s What You Need To Know Before You Start Trading On The Stock Market
Ready to buy your first stock market shares, exchange traded fund (ETF) or real estate investment trust (REIT)? You’ll first need a stock brokerage account. Here’s how to open an account to buy shares in the Malaysian stock market or in international stock markets.
Direct CDS vs nominee account
Before you open a stock brokerage account, you’ll have to decide if you want a direct Central Depository System (CDS) account or a nominee account.
The CDS is operated by Bursa Malaysia. It’s like a registry that keeps a record of all your stock holdings. When you buy shares of a public-listed company, they will be credited into your CDS account. When you sell these shares, they will be transferred out of your account.
Alternatively, you can open a nominee account. This means that your nominee (i.e. your bank or stock brokerage platform) will hold the shares that you buy, although you will still be the actual owner. Your nominee will help you handle any paperwork relating to owning these shares.
Here are the differences between a CDS and nominee account at a glance:
|Account name||Under shareholder name||Under nominee|
|IPO applications||Eligible||Not eligible|
|Corporate exercises (stock splits, mergers, etc.) paperwork||Handled by shareholder||Handled by nominee (upon instruction; may charge fee)|
|Dividends||Credited directly to shareholder’s account||Credited to trust account; nominee may charge fee for processing dividend payments|
|Annual general meetings (AGM)||Eligible to attend||Eligible, but need a Proxy Letter from nominee|
|Annual reports||Sent directly to shareholder||Sent to nominee; have to be requested|
|Share transfers||Handled by shareholder; can transfer to own or relative’s account||Handled by nominee (may charge fee); can only transfer to own account|
If you’re new to stock trading, it may be easier to sign up for a nominee account, as your bank or stock brokerage platform will handle the paperwork or administrative tasks for you.
But if you want more control over your investments, go for a CDS account. Your stock brokerage platform will help you open a CDS account when you sign up with them. If you open a second trading account with another platform, you’ll need to set up another CDS account.
Cash vs margin account
Generally, stock brokerage platforms offer two types of accounts: a cash account or a margin account.
A margin account allows you to borrow cash from your broker to buy shares. The amount you can borrow may be based on the value of your cash or shares that you use as collateral (e.g. borrowing up to 2x the cash you have in your account). When you trade on a margin, you can potentially earn more gains because you’ve borrowed money to buy more shares. But on the flip side, if your share prices go down, you’ll also experience more losses.
A cash account is simpler: it only allows you to invest using the money you have in your account. When you want to buy shares, you’ll need to deposit cash into your account to complete the trade. As a beginner, it’s probably best to minimise your risk by going for a cash account.
Comparison of stock brokerage fees in Malaysia
Next, it’s time to choose a stock brokerage platform. You’d want to consider how much fees the platform charges for executing a transaction (you’ll be charged once when you buy shares, and once again when you sell them). Here’s a comparison of fees for online transactions of stock brokerage platforms in Malaysia:
|Platform||Up to RM100k||Above 100k||Min fees|
|Affin Hwang Capital||0.70%||0.50%||RM28|
|CIMB Clicks Trader||0.0388%||0.0388%||RM8.88|
|HLeBroking Value Trade||0.106%||0.106%||RM8.48|
|KenTrade by Kenanga||0.60%||0.30%||Not stated|
|M+Online (M+ Silver)||< RM50k = 0.08%|
> RM50k = 0.05%
|Rakuten Trade||< RM1k = RM7|
RM1k to RM9,999 = RM9
RM10k to RM99,999 = 0.1%
RM100k = RM100
Besides these fees, you’ll also have to pay a 0.03% clearing fee (up to maximum of RM1,000 per contract) and a RM1 stamp duty for every RM1,000 in transaction value (up to a maximum of RM200 per contract).
Based on our comparison, Rakuten seems to offer the lowest fees, starting at RM7. While the price differences can seem minimal – it’s just a few ringgit, after all – if you’re making one or two transactions per month for an entire year, the savings can add up.
To open an account with one of these brokers, just visit their website and register online. They will typically ask you for the following:
- A RM10 fee for opening your CDS account
- Latest bank statements, EPF statement, pay slips or EA form
- Copies of your NRIC or passport
Once your application has been approved, you can start trading.
Comparison of international stock brokerage accounts
You can buy overseas shares with local brokers, but it can get expensive. Local brokers can charge a minimum of US$25 for buying US stocks. This makes international stocks inaccessible if you don’t have a lot of money to invest. For example, say you want to invest RM5,000 – a US$25 charge would mean paying around RM100, or 2%, in fees. And if you have even less money? Investing RM1,000 would mean paying 10% in fees!
For overseas stock purchases, it could be cheaper to buy them through an international stockbroker account. They generally charge much lower fees:
|Charles Schwab||US||0% commission for online equities||Minimum of US$25,000 to open individual account|
|Interactive Brokers||30+ countries||● Fees differ based on market|
● 0% commission for US ETFs
● For US stocks: US$0.005 per share or min US$1, max 1%
|Saxo||36 exchanges||● Fees differ based on market|
● For US stocks: US$0.02 per share or min US$10
|TD Ameritrade Singapore||US||0% commission for US stocks and ETFs|
These platforms make overseas stocks more accessible. But keep in mind that if you’re investing in US stocks, your dividends will be subject to a 30% withholding tax.
To open an account with these brokers, visit their websites and register online. They will typically ask you for proof of your identity (passport, driver’s license, national ID, etc.) and proof of address (mortgage statement, utility bills, etc.).
How do some foreign brokers charge zero fees?
If you’ve glanced through the table above, you may have noticed that some foreign brokers charge zero fees. How do they do that? Generally, a few ways:
- Interest returns. Your broker may invest or loan out your uninvested assets.
- Payment for order flow. When you buy or sell shares, your broker may not actually execute the trade themselves. Instead, they route it to a different firm who processes the transaction and pays your broker a fee.
- Selling your data. Your broker may collect data on you – such as what banks you use or how much you earn – and sell that to others who want to market financial products to you.
But before you start trading…
Investing directly in stocks has its upsides: you’ll have more control over your investments and you’ll pay minimal fees (you don’t pay fund managers or other third-party platforms to manage your investments).
But buying individual stocks has a steep learning curve. You’ll need to analyse each stock to determine if it’s a good purchase, keep up to date with company news and possess nerves of steel to withstand market shocks.
As a beginner, you could start by focusing on ETFs, which allow you to buy a group of stocks at once. By spreading your money across many different stocks at once, you’ll reduce the risk in your portfolio. You can also invest via unit trusts, which are similar to ETFs, but are bought through financial institutions or platforms instead of on the stock market. Alternatively, you could even invest via a robo advisor like StashAway, which handles investment decisions for you. Whichever route you choose, just make sure that you’re not going in blindly, and that you’re not taking on more risk than you can afford.