How to Trade Stocks Smartly in Hong Kong

Transcription

1 How to Trade Stocks Smart, Easy and Profitable The Truewealth Publishing Guide to Opening an Equity Trading Account in Hong Kong truewealthpublishing.asia 0

2 Table of Contents About Truewealth Publishing 2 Introduction 3 What is a brokerage account and why you d want to open one 4 Different types of brokers 5 Choosing your broker 6 Steps to opening a brokerage account 10 Placing your first trade 11 Pitfalls to avoid once you ve opened a trading account 14 truewealthpublishing.asia 1

3 About Truewealth Publishing Welcome to Truewealth Publishing. We re taking the mystery out of finance and investing so that you are empowered and informed to make your own investment decisions. Our aim is to help people just like you who are tired of the market noise and who are ready to build true wealth now. We can help you stay away from investments that will hurt you, and find the ones that will grow your portfolio so that you can educate your kids, take care of your family, and live the life you ve always wanted. We live in a world with too much information and not enough solutions. And this problem is compounded by too many people who are eager to help you invest your money in a way that will line their pockets instead of yours. We re independent analysts and writers who cut through the hype of the mainstream financial media, and self-serving private bankers, to give you real insiders insight. We have no hidden agenda. We ll never try to sell you a brokerage account or insurance product. We don t want to manage your money. We think that the best person to make decisions about your money is you... an informed and educated you. And we want to give you the tools to make those decisions... for starters, with this Insider Report and our Truewealth Asian Investment Daily. The Truewealth Asian Investment Daily is a free daily e-letter that opens the curtains on the most important and interesting investment, economic and business news and ideas in Asia and the world. We talk about what it all means for markets, and for your money. We ll also talk about opportunity and risk. And along the way we ll tell you what some of the smartest people in finance and investment are thinking... and sometimes we ll provide investment ideas as well. To sign up for the Truewealth Asian Investment Daily, you can click here, or visit our website at You can also sign up, or tell us your questions or thoughts, by dropping us a line at feedback@truewealthpublishing.asia. Once again, welcome. And thank you for joining us. We hope this is the start of a long and profitable relationship. Kim Iskyan Founder, Truewealth Publishing Singapore truewealthpublishing.asia 2

4 Introduction Stock markets dominate much of the news and you may have researched investing in the stock market yourself. But you hesitate because you aren t sure of how to go about opening an account, which broker to use, how much money you need to start and what types of fees and charges you can expect to pay. If you are new to the world of investing in stocks, and not entirely sure how to go about it or even if you re an old hand but are looking for a new broker our comprehensive guide will provide all the information you need to open a brokerage account in Hong Kong. truewealthpublishing.asia 3

5 What is a brokerage account and why you d want to open one A broker serves as a middleman when you want to buy or sell stocks. Brokers usually take a commission based on the value of the transaction each time you buy or sell. Depending on the type of brokerage account, you can access stocks listed in Hong Kong or on overseas exchanges like the New York Stock Exchange, NASDAQ, Singapore Exchange, etc. Your account may also enable you to trade other types of investments such as mutual funds, bonds, exchange-traded funds (ETF) and Contracts for Difference (CFD). You can open a brokerage account with many banks or online brokers. The accounts are different than bank accounts. They are designed for trading in investments like stocks, bonds, futures and commodities. You can t use them like a bank account to buy insurance, pay bills or use a debit card against the cash held in the account. So, if you want to invest in stocks, bonds and the like, you ll need a brokerage account. truewealthpublishing.asia 4

6 Different types of brokers Hong Kong is home to the third largest stock market in Asia and the sixth largest in the world. It is very investor friendly with no capital gains or dividend tax and limited controls on capital. Volumes increased tremendously after the Shanghai-Hong Kong Stock Connect in 2014, which allows international investors to trade a select number of stocks listed in Shanghai on the Hong Kong Exchange. So the number of brokerages, both local and foreign, has gone up substantially, meaning finding the right one could prove tricky for first time investors. Many of the local Hong Kong banks offer brokerage services. If you have a bank account with a major bank, it may be easy to open a trading account with them. The charges will vary depending on who you choose. But, you may find that online brokers offer the same services for much less. One of the most popular right now is Interactive Brokers. Like many other online brokerages, they allow residents to easily invest in foreign stocks on most major exchanges. Local brokerages like Boom Securities and KGI also have a lot to offer. If you want more guidance while investing, or are a high net worth individual with a private banker, you may find it easier to use a full service brokerage account with your bank. They provide stock research and investment reports, have local offices, and offer investment seminars. truewealthpublishing.asia 5

7 Choosing your broker This is an extremely competitive industry, which means you can find great service at bargain prices if you look hard enough. Here are some factors you may want to consider when looking for a broker. Ease of Availability When you start trading in stocks, the last thing you want is a struggle to place a trade. If you want to make adjustments to your profile, deposit some cash or buy a new stock, you need it to be instantaneous. This is why the level of access offered by your broker is important. The level of access is especially important if you prefer trading on the telephone. The brokerage office needs to be open at the right time and you need to be able to get through to someone quickly if you want to buy or sell. If you trade online, you want a smooth online interface that is supported with servers that never go down. In both cases, online and on the telephone, you need good customer support. If you need to call an international number that costs more, or have to speak to someone with a foreign accent, you may struggle to resolve minor account issues. Look for a local or national broker that has earned a reputation for great customer service over the years. Fees and Commission Charges This is probably the most crucial factor to consider when looking for a broker. The costs are a fraction of the amount you invest, but over the long term they add up and can affect your returns. So, keeping costs low is important. Brokers usually charge an annual or semiannual management fee and take a commission for every trade. Some charge a flat fee per trade, but those sorts of brokers are rare. Most banks charge brokerage fees of about 0.25 percent of the trade. A lot of banks also have a minimum fee for every transaction, which is generally around HK$100. Standard Chartered is a major exception to this they have no minimum transaction fee, which is good for people who want to trade smaller amounts. They also charge 0.2 percent and 0.3 percent for online and phone trades respectively. So, for a trade worth HK$25,000 your commission would be HK$50 - HK$75. Online brokers commissions are a lot lower. Boom Securities is a well-known online broker that offers stock trades at 0.18 percent commission with a minimum online fee of HK$88. Chief Securities offers online trading at percent with a HK$38 minimum. Whichever online broker you choose, make sure they have outstanding customer service and a good trading platform. Sometimes you get what you pay for. The commission rate is not the only charge. Here is a list of most of the charges that may be applied to your transaction. You have to account for these charges when calculating your investment performance. Transaction Levy: % Trading Fee: 0.005% Trading Tariff: HK$0.50 (Broker decides if they will pass this on to investors) Stamp duty on stocks: 0.1% (rounded up to the nearest dollar, based on the value of the transaction) Transfer deed stamp duty: HK$5 (paid by seller for each share certificate) Transfer fee: HK$2.5 (paid by buyer for each share certificate) truewealthpublishing.asia 6

8 Reputation of Broker When you begin investing, you ll be risking your hard-earned money. That s why it s important to pick a broker with a stellar reputation - they are the custodians of your wealth. So, if it is not a tightly regulated bank or other well-known institution, make sure to do your homework on the company. The Securities and Futures Commission (SFC) always has a list of licensed intermediaries that are authorized to offer brokerage services. A good first step is to see if the broker is registered with the SFC by checking the SFC website Hong Kong also operates the Investor Compensation Company Limited (ICC), which compensates investors if their brokerage houses go broke and can t reimburse them. But the compensation is limited to HK$150,000 for both individual and joint accounts, which may prove too small for most investors. Make sure your broker is part of this program. Foreign brokers such as Interactive Brokers are not covered by the ICC. If you choose an online trading service provider who is located overseas, make sure you are dealing with one that is licensed in that particular jurisdiction. If a firm is not licensed in a jurisdiction, it is best not to use its services. In addition, it is important to get acquainted with the regulations and investor compensation systems that are applicable in the markets you re investing in. Trading Platform The internet infrastructure in Hong Kong is one of the world s best, so it s easy to trade online. Many online brokers offer steep discounts and flat fees for stock trades to help you keep trading costs low. If you are going to execute your own trades, you should always ask for a demo version from the broker to ensure you like the usability of the trading platform. Do the platforms include functionalities that help you track research or screen stocks, offer charting tools and make it easier for you to manage your investments? If you intend to trade on the go, ensure that the mobile application works for you as well, as features may differ between the desktop and mobile versions. Keep in mind that trading online can carry some security risks. Make sure to pick an online broker that has adequate security measures in place to protect you and your accounts. If you are uncomfortable trading online, or if the broker offers a product with design flaws, it could affect your trading experience. There is nothing worse than having the server go down just when you want to make an important trade. Take some time to read online reviews from customers and find out as much as you can about a broker s trading platform before you sign up. You ll find that it makes sense to pay a little more in fees if the broker invests in a great online platform. Access to Trading Products All local brokers offer access to stocks listed on the Hang Seng. But if you want to trade foreign stocks, futures, options, commodities, CFDs and ETFs, make sure they offer them. You may also want to see the policy on margin accounts (borrowing to invest) and how much the broker can offer if you want to get started. truewealthpublishing.asia 7

9 Popular Hong Kong Brokers: DBS Vickers HSBC Saxo Capital Markets Phillip Securities Interactive Brokers Boom Securities Markets Online: Canada, Hong Kong, Singapore, USA Brokerassisted: Australia, China B, Indonesia, Japan, Malaysia, Philippines, Thailand, UK Online: Hong Kong, China A (eligible via Shanghai Connect), USA Brokerassisted: Australia, Canada, China B, Japan, UK Online: Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece (CFDs only), Hong Kong, Italy, Japan, Netherlands, Norway, Poland, Portugal, Singapore, South Africa, Spain, Sweden, Switzerland, UK, USA Online: Australia, China B, Hong Kong, Indonesia, Japan, Korea, Malaysia, Singapore, Taiwan, Thailand, USA Brokerassisted: Canada, France, Germany, Philippines, UK, Switzerland, Turkey, Finland, Ireland, Sweden Online: Australia, Austria, Belgium, Canada, France, Germany, Hong Kong, India (for NRIs only), Italy, Japan, Mexico, Netherlands, Singapore, Spain, Sweden, Switzerland, UK, USA Australia, China B, Eligible China A, Hong Kong, Indonesia, Japan, Korea, Malaysia, Philippines, Singapore, Taiwan, Thailand, U.S. Trading Access Online and telephone Online and telephone (for Premier customers) Online Online and telephone Online Online Fees 0.2% (online) 0.25% (telephone) Min HK$ % (online) 0.4% (telephone) Min HK$ % Min HK$ % (online & telephone) Min HK$ % Min HK$ % min HK$88 truewealthpublishing.asia 8

10 Dividend Fees 0.25% (min HK$10) 0.5% (min HK$30, max HK$2,500) None 0.5% (min HK$30, max HK$2,500) None None Custody Fees None HK$25 per month for each securities account None None None None Multi - currency Yes Yes Yes Yes Yes Yes Account Minimum None None US$10,000 None (HK$10,000 for applicants not opening account in person) US$10,000 None Unique Features One of the longest-standing brokerages in Singapore and pioneer of Singapore's online share trading Allows screening of stocks using a set risk-profile Best Retail Broker 2015 at SIAS 16th Investors' Choice Award Wide range of market access One of the most established banks in Singapore Founded in 1997, Boom is one of the most popular local, independent brokers in Hong Kong truewealthpublishing.asia 9

11 Steps to opening a brokerage account The procedure for opening a new investment account is pretty much the same regardless of which broker you use. Note: some banks in Hong Kong (including HSBC) will not open stock accounts for customers who are U.S./Canadian nationals or with U.S./Canadian correspondence addresses, to comply with securities dealing restrictions. At the same time, certain local brokerages, such as Boom Securities, are still happy to do so. Here are the steps for opening a brokerage account with almost any domestic broker in Hong Kong: Step 1: Complete account opening forms This is usually just an application form you fill in with your details. It can be completed online for most brokers, but some may need you to fill out a physical form and mail it to them. These application forms are usually only a few pages long and shouldn t take too long to complete. Step 2: Collect supporting documents Brokers are legally required to collect a few official documents to help them verify your residence status, bank accounts and tax codes. This usually includes proof of citizenship and identification, proof of address and signature verification. There may be a few other official documents needed as well. The broker will let you know exactly what is required. Step 3: Send it in and wait Once you ve completed and submitted your application form and other documents, either by mail or in person, the brokerage will verify the details and activate your account. This could take a few business days and varies depending on the brokerage. The broker will let you know when the account is activated. You can start trading right away once everything is confirmed. Step 4: Fund your account You can deposit funds into your account as soon as it has been activated. The amount of funds you need to deposit into the account depends on how much the broker requires as a minimum and how much you are likely to invest in the stock market. Some brokerages have no minimums, so you can leave the account with HK$0 for a while. Others may need a minimum cash balance of a few thousand dollars, which needs to be funded right away. Some require a personal cheque to initially open an account, though almost all brokers allow the account to be topped up via: Internet banking Personal Cheque ATM Cheque deposit machines Branch deposit transfer Phone banking truewealthpublishing.asia 10

12 Placing your first trade Now that you are done with the administration, here comes the exciting part trading! For someone new to the world of investing, looking at the stock screen with numbers blinking away can be overwhelming. Here we'll break down some of the common information you'll see on the stock screen and what it means: Name Stock name/quote High/low price Last done Bid/Ask price Lot size Description The name/quote of the stocks you are buying. Depending on your broker, they can be classified by sectors or countries. The highest price and lowest price the stock traded for so far that day. Last done price refers to the last transacted price for a particular stock. This is probably the most important information you need before buying a stock. You will buy the stock at the ask price (price sellers are asking), while you sell the stock at the bid price (what buyers are willing to pay). You'll notice that the ask price is slightly higher. The difference between the bid and ask price is called the spread. When there are many people trading a particular stock, or the stock is liquid, the bid-ask spread is usually smaller/tighter compared to a stock that has a low trading volume. When you get a stock price on the screen, your online broker might display a board selected lot size for the stock. You can trade in multiples that are not in the lot size, but these oddlot trades must be done on a separate designated market. truewealthpublishing.asia 11

13 Order Types After you ve made sense of the stock screen on your broker s website and funded your account, the next step is to learn how to place an order for a stock. Here are some common stock orders: Name Market Order Limit Order Stop Limit Order Good-til-Cancelled (GTC) Order Description Market orders are buy or sell orders executed immediately at the prevailing price. You will be sure to get the number of shares you want with a market order, but it may not be at the price you are expecting. Limit orders ensure execution for at least a portion of the order, but may not be for as many shares as you wanted. Say you wanted to buy 1000 shares of ABC Company, but were only willing to pay HK$14.00 per share, which is lower than the current market price. You can place a limit order for 1000 shares at HK$14.00, but you may only get 500 shares at that price, with the rest of the order not filled at all. Unlike the limit order, the stop limit order is only triggered when it reaches the activation price. There are two components to this order the trigger and the limit price. When the bid/ask price of the stock reaches the trigger price, the order converts to a limit order and is executed at the limit price or better. Good-til-cancelled means that the order will stay open until 1) you cancel it or, 2) the order is filled. Such orders can be a good way to help you place an order for a stock you are watching so you can buy it at the desired price. truewealthpublishing.asia 12

14 Types of Asset Classes for Trading There is a large variety of trading instruments that are related to stocks or are stocks-like in nature. You'll need to check with your broker if you need a separate account for them. Here's a short introduction to some of these investment vehicles: Asset Class Stock Exchange-Traded Funds (ETF) Fixed Income (Bonds) Contracts for Difference (CFD) Regular Savings Plans American Depository Receipts (ADR) Description A stock is a share in the ownership of a company. It represents a claim on the company's assets and earnings. An ETF is a fund-like security that tracks an index, a commodity, bonds, or a basket of assets. An ETF trades like a common stock on the stock exchange. A bond is an investment in which an investor loans money to an entity (usually corporate or government) for a defined period of time and receives regular payments based on a fixed interest rate. Bonds are used by companies and governments to raise money and finance a variety of projects and activities. They provide a stable income stream and usually have a lower risk than stocks. A CFD allows you to speculate on the market movements of an underlying asset, without actually owning or taking physical delivery of the underlying asset (shares, commodities or currencies). CFDs are leveraged instruments, which means you pay a small portion of the value of the underlying shares to open the position, instead of paying their full value. Due to leverage, your gains and losses will be magnified. Investors who trade CFDs typically have a bigger risk appetite. This is not a regular savings account you have with a bank. Rather, a regular savings plan is a way for investors to invest a fixed amount of money each month to make a pre-determined investment no matter how the market is performing. For instance, you can subscribe to a plan that places HK$500 per month into the Hang Seng Index ETF. It's a disciplined approach that uses the dollar-cost averaging principle to help even out price bumps. American Depository Receipts (ADR) are certificates issued by a depository bank that represent a specified number of shares in a foreign company. ADRs listed on the Hang Seng Index give investors access to ADRs during Asian trading hours. truewealthpublishing.asia 13

15 Pitfalls to avoid once you ve opened a trading account 1. Don't run before you can walk. If this is the first time you've traded stocks, take it slow. Explore the look and feel of the broker s web site to know where things are and how it all fits together. When you decide to buy a security, start off with something easy, like a blue-chip stock. Don't rush to buy penny stocks or options just yet. Only buy something after you completely understand what you're buying. And it goes without saying that you shouldn't buy a stock (or anything else) without understanding the underlying company you are becoming a shareholder after all. 2. Don't get distracted by "losing" money. As we've written before, it's easy to get caught up in what today's paper says and what the talking heads on TV are discussing. It's even easier to get drawn into the game of watching your account value fluctuate on a minute-by-minute basis. Get used to the feeling that the value of your stocks will change everyday - sometimes by quite a bit, depending on the size of your position. Behavioural science has shown that the pain of losing $1 is more than the pleasure of winning $1. You'll torture yourself, and be a less successful investor, if you get sucked into watching the ticker. Take a page from the book of Warren Buffett, who doesn't even have a way to check stock quotes in his office. 3. Watch your transaction size. Remember that brokers will charge you a minimum flat fee, plus other fees. That means that if the total value of your transaction is just a few hundred dollars, the value of what you bought will have to increase quite a bit before you even cover the cost of the trade. When you're starting out and might have a small account, be sure that fees don't destroy your returns. As the size of your account grows, and the amount you spend on a transaction rises, the relative cost of buying and selling will fall, and you won't really even pay attention to it. truewealthpublishing.asia 14

16 2016 Truewealth Publishing Pte Ltd. All Rights Reserved. All content made available to you through our services are subject to and protected by copyright, and other intellectual property laws of Singapore and international treaties. Legal disclaimer: The insight, recommendations and analysis presented here are based on corporate filings, current events, interviews, corporate press releases, and w hat we've learned as financial journalists. They are presented for the purposes of general information only. These may contain errors and we make no promises as to the accuracy or usefulness of the information we present. You should not make any investment decision based solely on what you read here.

17