HOW-TO: START TRADING ON THE MALAYSIAN STOCK MARKET
Watching share prices rise and fall can leave a beginner frozen with fear, especially those who are not used to the volatility[1] of the stock market. But whether you call it stock market trading, or owning and buying shares, the process itself is not too difficult to understand. Here is a simple step-by-step guide on how to acquire and trade your first shares in Malaysia’s stock market:
Step 1: Evaluate your risk appetite
Like ordering food from a menu, you would never just order the first dish you see. You would consider what stimulates your appetite the most before committing to order. Similarly, before deciding on whatstocks to buy, you must evaluate your risk appetite[2].
There are several aspects that can help you evaluate your investment risk appetite:
Step 2: Open a CDS account
Investors who wish to trade in securities listed on Bursa Malaysia must first open a Central Depository System (CDS) account with stockbroking companies/investment banks.
The CDS acts as a means of representing ownership and movement of securities. It allows you to buy and/or sell shares, and to track your shares’ movements. Securities you buy will be credited into the CDS account, while securities you sell will be debited.
To open a CDS account, you will generally need to provide a copy of your identity card and RM10.
You will also need to open a trading account. This is usually done simultaneously with the opening of the CDS account.
You can find the list of licensed stockbroking companies on the Bursa Malaysia or Securities Commission Malaysia website.
Step 3: Be with a broker (who won’t leave you broke)
Once you have set up your CDS account with the stockbroking company of your choice, you will need to select a remisier (an agent of a stockbroking company that is licensed by the Securities Commission).
You can find out more about finding the right broker here.
The standard brokerage fee is around 0.40%, with the cheapest being around 0.05%. To find out which broker has the lowest fee, check out iMoney’s share trading account comparison table.
Do-It-Yourself (DIY):
Alternatively, you may opt for the DIY route by opting for an online trading account. The most attractive aspects of online trading are its lower brokerage fees and convenience.
There is also less potential for human error — Incidents such as your broker making a mistake, or execution delays when your remisier is not in the office or is busy with another client will no longer occur.
Trading online also allows investors the convenience and flexibility of trading anytime, anywhere, and on various devices. Investors are also able to check real-time stock processing, and access account portfolios and trade history online.
However, the downside is that with so many stocks on offer, a novice investor may get a little confused or overwhelmed and end up making a loss especially if they have little or no prior investing experience, which is why the next point is especially important:
Step 4: Do your homework
Trading shares is not for the weak, and especially not for those seeking an easy way out. To reap the rewards, you will have to do your homework by researching the companies you wish to invest in. This includes taking the time to analyse the company’s business strategies, the quality of management, its relationship with suppliers and customers, and more. You must also keep track of corporate developments through sources such as the Bursa Malaysia website’s “Announcements” page and the news.
There are no sure-fire ways to make money from trading in shares, but here are some common principles that most share traders live by:
- Diversify your investments
As the saying goes, “do not put all your eggs in the same basket.” Prudent investors own stocks of different companies in different industries, and sometimes even in different countries, with the expectation that a single bad event will not affect all of their holdings at once. - Do not chase “hot tips”
You may have heard it from your brother, your co-worker or even your broker, but you should never take any “hot tips” you receive at face level. When you make an investment by buying or selling shares, it is important that you fully understand why you are doing it. Relying solely on a tid-bit of information from someone else without doing your own research is a recipe for investment disaster. Bottomline? “Hot tips” do not exist! - Think long-term
As a long-term investor, you should not panic if your investment(s) experience sudden, short-term fluctuations. When tracking the activities of your investments, always look at the bigger picture. Be confident in the quality of your investments, instead of being nervous about the inevitable volatilities of the market in the short-term.
[1] Volatility refers to the amount of uncertainty or risk regarding the size of changes in a security’s value. A higher volatility means that a security’s value can potentially be spread out over a larger range of values. Basically, the price (of the security) can change dramatically in a short span of time in either direction.
[2] The degree of variability in investment returns that an individual is willing to withstand.