Opening Your First Trading Account In Malaysia
So, you have read through all the basics about investing from our investing 101 page. You are now ready to start dipping your toes into the stock market. That is wonderful news. However, how do you actually trade shares in the market? Here are the three easy steps to start investing.
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Open Your Trading Account + CDS Account
There is only one stock exchange in Malaysia; Bursa Malaysia. The market is tracked by the Kuala Lumpur Composite Index (KLCI), which is a market-capitalisation weighted index of the 30 constituents on Bursa Malaysia.
To trade in Malaysia, you would have to open two accounts; a trading account with a brokerage and a Central Depository System (CDS) account. A CDS account is a depository for you to keep your Malaysia stocks after you buy them. The CDS account is maintained by Bursa Malaysia directly and has no links to the brokerages. Think of it as a safe deposit box for your shares.
Fortunately, most brokerage should be able to help you process the opening of a CDS account when you open the trading account.
There are many brokerage houses in Malaysia, and most local banks would have a brokerage arm as well. iMoney.my provide a good summary of the fee structure of most of the brokerage houses here.
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Decide On Your Options
There are a few types of trading account you can open. Before you sign up for one, think about how you are going to use it. Some of the options include:
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Do you want a global trading account or just a local trading account?
Typically, you need to sign a few additional forms to allow you full trading access to other global markets. If you want to trade beyond Malaysia, remember to inform your brokerage house you need global access. Remember that generally, the commission fee for trading overseas would be much higher compared to just trading locally.
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Do you want a direct trading account or a nominee account?
A direct trading account is quite straightforward. It is just a trading account for you to perform the trade and your shares will be deposited into your CDS account. A nominee account would place your shares directly under your brokerage house as your nominee. This means that your local shares would not be placed in your CDS account. There are pros and cons with regards to this option.
The advantage is that you can consolidate all your holdings (foreign and local) into one account. Moreover, most of the backend forms for corporate action would be taken care of by your brokerage house, instead of you waiting eagerly for the forms to arrive in your mailbox for every Rights issue, privatisation or EGM.
The disadvantage is that your brokerage house is owning the shares on your behalf. So if anything happens to the brokerage house, there might be a (small) chance you are not protected against the loss of your holdings.
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Do you want a cash account or a margin (collateralised) account?
Another option to consider is whether you want to have a pure cash account or a margin (collateralised) account. A cash account would require you to deposit your cash into the account first before trading. This type of account typically would have lower commission fees (but do check with your brokerage house). A collaterlised account allows you to pay for the trade later and give you margins or loans on the cash and shares you already have in your account. This allows you to leverage up your investment. However, we spoke before on why leverage can be dangerous and can lead to bankruptcy if you are not careful. So if you are just starting out in investing, it would be better to stay far away from leverage and margins.
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Online or Offline Account
Who uses a pure offline account these days? Remember to get access to both!
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Start Building Your Watch List
We should not be investing into companies without some research on them first. A good practice to have is to just start building a watch list of companies that might be interesting to you. We can do that even when we are not investing. As long as we find the business of the company attractive, we can keep it on our watch list and wait for the right opportunity to invest in them.
Investing is a life-long journey and Value Invest Asia is here to provide you with the best resources about how to invest and the analysis of companies listed here in Asia. To stay up to date on the market, remember to subscribe to our mailing list. You would be able to get a free E-Book, Our Stock Guide 2017: Top 10 Companies on Our Watch List Today, if you sign up now!
