Copyright Beyond Insights Sdn. Bhd., 2014. 12-Oct-2014
Agenda World Markets Hours Basic Investing/Trading terminology Brokers Comparison Halifax Demo Account Application & Installation Halifax Live Account Application Useful Websites Index & ETF Copyright Beyond Insights Sdn. Bhd., 2014. 2
World Stock Market Hours (Converted to Malaysia Time as of 9-Mar-2014) US (NYSE/CBOE) 9:30 pm 4:00 am (10:30 pm 5:00 am 3-Nov-14 7-Mar-15) Hong Kong (SEHK) 9:30 am - 12:00 pm 1:00 pm 4:00 pm Japan (TSEJ) 8 am- 10 am 12:30 pm 2 pm UK (LSE) 2 pm 10:30 pm (3 pm 11:30 pm 26-Oct-14 28-Mar-15) Bursa Malaysia 9:00 am - 12:30 pm 2:30 pm - 5:00 pm Australia (ASX) 7 am 1 pm (8 am 2 pm 6-Apr-14 5-Oct-14) Copyright Beyond Insights Sdn. Bhd., 2014. 3
Basic Investing/Trading Terminology Share related Terminology Demo Trade Buy/Long : Buy to Open, Sell to Close Sell/Short : Sell to Open, Buy to Close Ask, Bid, Spread Stop Loss Gap Order Type Limit/Market/Stop Pending Order Lot Commission Margin Copyright Beyond Insights Sdn. Bhd., 2014. 4
Share Terminology A Share constitutes the equity stake of the owners of the company. Imagine a company is authorized to raise $100,000,000 capital from the public. This is called AUTHORIZED CAPITAL. The company can choose to divide them into 100,000,000 units of shares. So, each share will have a PAR VALUE of $1. The company may not issue all of it at once if it does not need it now. So it can issue, let say 10,000,000 units first. This is called ISSUED CAPITAL. If the company can sell all of the 10,000,000 shares, they would have raised the $10,000,000 capital. Most of the time existing companies issue shares at a premium to it s par value e.g. $1.30 instead of $1.00 If the company earned $2,000,000 profit after taxes during its first year, each share would be entitled to 1/10,000,000th of the profit which is equal to $2,000,000 / 10,000,000 units = $0.20 Earnings per Share (EPS). This earnings may be distributed to shareholder as dividends depending on the company s discretion. Copyright Beyond Insights Sdn. Bhd., 2014. 5
DEMO Account Demo account is a paper money account for you to practice like live trading You should trade demo as if this is your live account. Assume the same capital as in Live account Use the same trade size as in Live account Practice all the key functions you need to make sure you don t make mistakes during live trading Monitor the performance of the trade Copyright Beyond Insights Sdn. Bhd., 2014. 6
How to make money on Uptrend? Buy Low & Sell High SELL to CLOSE @ $40 BUY to OPEN @ $33 Copyright Beyond Insights Sdn. Bhd., 2014. 7
How to make money on Uptrend? Buy Low Sell High (KO) Buy to open at $33 Sell to close at $40 Cost per unit = $33 Buy 100 units = $33 x 100 units = $3,300 Profit = ($40 - $33) x 100 units = $700 ROI (Return on Investment) = $700/$3,300 = 21% Copyright Beyond Insights Sdn. Bhd., 2014. 8
How to make money on Downtrend Sell High & Buy Back Low SELL to OPEN @ $27.50 BUY to CLOSE @ $7.50 Copyright Beyond Insights Sdn. Bhd., 2014. 9
How to make money on Downtrend? Sell High Buy Low (RIMM) How do I sell if I do not own any stocks?? You need to borrow the stock first (via the broker) Sell to open at $27.50 Buy to close at $7.50 Cost per unit = Margin Required by broker for short selling = ~20% x Stock Price = 20% x $27.50 = $5.50 Sell 100 units = $5.50 x 100 units = $550 Profit = ($27.50 - $7.50) x 100 units = $2,000 ROI (Return on Investment) = $2,000/$550 = 364% Note: For short selling, if there is dividend declared before you close the position you need to pay dividends to the lender of the stock) Margin Requirement can change over time depend on the broker and the volatility of the Stock/ETF. (Refer to margin requirement page). It can typically range from 20-50%. Copyright Beyond Insights Sdn. Bhd., 2014. 10
Order Type Limit Order - An order placed to buy or sell a set number of shares at a specified price or better Market Order - An order to buy or sell shares immediately at the best available current market price Stop Order - An order to buy or sell shares when its price surpasses a particular price point. Once the price surpasses the predefined entry/exit point, the stop order becomes a market order. You may not get exactly the stop price. Copyright Beyond Insights Sdn. Bhd., 2014. 11
Example of a BUY order Profit Taking Sell Limit @$32 Buy to Open Buy Limit @$30 Stop Loss Sell Stop @$29 $2 $1 Copyright Beyond Insights Sdn. Bhd., 2014. 12
Example of a SELL order Stop Loss Buy Stop @$51 Sell to Open Sell Limit @$50 Profit Taking Buy Limit @$48 $1 $2 Copyright Beyond Insights Sdn. Bhd., 2014. 13
Gap Closing Price $18.22 Opening Price $17.00 Copyright Beyond Insights Sdn. Bhd., 2014. 14
Bid/Ask Bid - An order made by an investor/trader to buy a share Ask - An order made by an investor/trader to sell a share Bid Price The price a buyer is willing to pay Ask Price The price a seller is willing to sell Spread Distance between the bid and ask price Copyright Beyond Insights Sdn. Bhd., 2014. 15
Lot In terms of stocks, lot size is the minimum number of shares you need purchase in one transaction. For Malaysia Stock Exchange, you need to purchase in a minimum of 1 lot = 100 units For US Stock Exchange, there is no minimum lot size, you can even buy 1 unit of stock. For US CFD for indices and stocks, you can even buy 1 unit in Halifax Online. Some other brokers may have some minimum lot size requirement depending on the share. For US Options, 1 standard call or put option gives you the right to 100 units of shares. Copyright Beyond Insights Sdn. Bhd., 2014. 16
Commission A service charge assessed by a broker in return for handling the purchase or sale of a security. Most major, full-service brokerages derive most of their profits from charging commissions on client transactions or from spreads between the bid/ask price. Commissions vary widely from brokerage to brokerage. E.g. Stocks & Options: (TDAmeritrade) $5 minimum for stocks, after that $0.015 per share up to a flat fee max of $9.95 for up to 5000 shares. Anything less than 333 shares will cost $5 commission per transaction per side(buy/sell). CFD $1.25 per option contract per side (buy/sell). This is discounted rate for Beyond Insights students. Original rate is $2.95. CityIndexAsia : $0.02 per unit of CFD for US share, USD15 minimum, no commission on Index Halifaxonline : $0.06 per unit of CFD for US Share, USD15 minimum, no commission on Index Interactivebrokers: $0.005 per unit of CFD for US Share, USD1 minimum, commission on Index (Details calculation to be covered in CFD workshop) Copyright Beyond Insights Sdn. Bhd., 2014. 17
Margin Requirement Borrowed money that is used to buy shares. This practice is referred to Buying on margin Margin requirement = The amount of cash/equity contributed by a customer as a percentage of the current market value of the securities held in a margin account. Margin Call = You would receive a margin call from a broker if one or more of the securities you had bought (with borrowed money) decreased in value past a certain point. You would be required either to deposit more money in the account or to sell off some of your open positions. Typical margin for shorting a stock or option is 20-50% of the share price. Margin may change depend on the broker, the volatility of the market and the specific stock and whether any special announcement is coming up like earnings. Typical margin to buy/sell CFD for US shares is 5-10% of the share price (for S&P500 companies). Typical margin to buy/sell CFD for US indices is 1-5% of the index value. Copyright Beyond Insights Sdn. Bhd., 2014. 18
Example of Buying with Margin COST OF PURCHASE NO MARGIN Buy MSFT share @$30 Amount Required = 100 units x $30 = $3,000 ROI if Stock goes up to $32 Profit = $32 - $30 = $2 ROI for Stock (No Margin) = $2/$30 x 100% = 6.7% With 50% MARGIN (STOCK) Amount Required = 100 units x $30 x 50% = $1,500 With 10% MARGIN (CFD) Amount Required = 100 units x $30 x 10% = $300 ROI for Stock (50% Margin) = $2/$15 x 100% = 13.3% ROI for CFD (10% Margin) = $2/$3 = 67% Copyright Beyond Insights Sdn. Bhd., 2014. 19
CFD Brokers Choices - Main Difference City Index Asia Minimum SGD600 to open account Offices in Singapore, London, Sydney, Boston, New Jersey, Warsaw, Shanghai Regulated by MAS (Monetary Authority of Singapore) Segregated and Trust account Demo expiry in 1month unless you have a funded live account Web-based, Desktop & mobile platform available A good choice if you trade Singapore shares or safety of funds in Trustee setup is your top priority www.cityindex.com.sg Halifax Online No minimum to open account (Minimum USD 5000 to open account was waived for Beyond Insights students) Public company in Australia Non Segregated Account but separated from Company Funds Demo expiry in 1 month (extended to no expiry for Beyond Insights students) High Liquidity & Better execution speed Desktop, web-based and mobile browser platform available Correlation chart available A good choice if you also Day Trade Trade Shares in Australia, HK, Europe, etc Trade other instruments e.g. Shares, Futures, Future Options www.halifaxonline.com.au Copyright Beyond Insights Sdn. Bhd., 2014. 20
CFD Brokers Choices - Main Difference Interactive Brokers Minimum USD 10,000 to open account Largest online broker with most complete global offerings of Stocks, ETF, Options, CFD, Forex, Futures. Web-based, Desktop (Windows & Mac) and mobile platform available More complex platform as it s designed for high volume and active traders. Charges USD10 per month if commission is less than USD30 per month A good choice if you are active trader www.interactivebrokers.com Application instructions available in facebook under File menu. Interactive Brokers Halifax is a reseller for Interactive Brokers. Halifax provides account opening support and platform support for IB but they charge a markup on top of IB standard commission rates. Minimum account Copyright Beyond Insights Sdn. Bhd., 2014. 21
Required Documents by Broker Proof ID: Photocopy of I/C and Passport. Even if they just ask for Passport, do supply your I/C as well since Passport expires every 5 years. Proof of address: In the form of a recent bank statement, utility bill or telephone bill. mobile phone bill is not acceptable as proof of address For City Index (FX and CFD) applications: A printed copy of our applicable Risk Disclosure Statement signed by you and a witness For TDAmeritrade (Stocks & Options) A printed copy of the W8-Ben form. The hardcopy need to be sent to TDAmeritrade. Scan all the above documents and send to the respective email as in the application reference documents. Copyright Beyond Insights Sdn. Bhd., 2014. 22
Halifax Live Account Opening Live Account Opening Link: http://www.halifax.com.au/csa?id=397 Guide on how to fill up the form: http://www.beyondinsights.net/cfd/tutorial/halifax-application-form.pdf Please send an email to kamil@halifaxonline.com.au and copy support@beyondinsights.net after your submit the online application, stating that you are a Beyond Insights client. That will speed up the application as Kamil is in charge of our students account opening and can setup the default discounted commission rate. Scan the following documents and send the softcopy to Kamil: 1) Malaysia National Identity Card 2) Your Passport 3) Utility Bill (e.g. Electricity or water) OR Bank Statement - with your Name and Addres You do not need to send anything by post if you can email them the softcopy. In case you get an email asking you to certify your documents - You do not need to get the documents certified - this requirement has been waived for Beyond Insights students. Copyright Beyond Insights Sdn. Bhd., 2014. 23
Investment Jargons definition www.investopedia.com US Stock market news www.cnbc.com www.marketwatch.com www.bloomberg.com www.reuters.com Free Stock Charts www.tradingview.com/e What are the big investment guru holding? www.gurufocus.com/ Analyst Research/Commentary on Stocks seekingalpha.com www.fool.com www.wikiinvest.com (to be given on workshop) Economic Indicators timing & results www.forexfactory.com www.briefing.com (Includes Introduction to US Stock Market Useful Links Stock Screening & Analysis (will be given during workshop) Upgrades/Downgrades/Stock Splits) Copyright Beyond Insights Sdn. Bhd., 2014. 24 Main Screener finance.yahoo.com Analyst Targets (High, Medium, Low) Financial Statements (Cash Flow, Balance Sheet, Profit & Loss Statement), etc finance.google.com News correlated with chart timing Latest earnings time, etc Competitive study Correlation study money.msn.com Multiyear chart & Industry comparison, etc www.morningstar.com Earnings Transcript (/earnings) directory Multiyear study form4oracle.com Insider Trading
US Market Capitalization Terminology Mega-cap Large-cap Mid-cap : Small-cap Micro-cap Nano-cap : Over $200 billion : Over $10 billion : $2 billion $10 billion : $250 million $2 billion : Below $250 million : Below $50 million Copyright Beyond Insights Sdn. Bhd., 2014. 25
What is Sector/Industry? Sector A large segment of the economy E.g. Technology Industry Further breaking down of the sectors into more defined groupings E.g. Computer Based System Internet Information Providers Telecom Services Copyright Beyond Insights Sdn. Bhd., 2014. 26
S&P 500 Sector Weighting Copyright Beyond Insights Sdn. Bhd., 2014. 27
1. Energy Sector Comprises companies whose businesses are dominated by either of the following activities: The construction or provision of oil rigs, drilling equipment and other energy related equipment and services, including seismic data collection. Companies engaged in the exploration, production, marketing, refining and/or transportation of oil and gas products, coal and other consumable fuels. Copyright Beyond Insights Sdn. Bhd., 2014. 28
2. Materials Sector Encompasses a wide range of commodity-related manufacturing industries. companies that manufacture chemicals, construction materials, glass, paper, forest products and related packaging products, and metals, minerals and mining companies, including producers of steel. Copyright Beyond Insights Sdn. Bhd., 2014. 29
3. Industrials Includes companies whose businesses are dominated by one of the following activities: The manufacture and distribution of capital goods, including aerospace & defences, construction, engineering & building products, electrical equipment and industrial machinery. The provision of commercial services and supplies, including printing, environmental, office and security services. The provision of professional services, including employment and research & consulting services. The provision of transportation services, including airlines, couriers, marine, road & rail and transportation infrastructure Copyright Beyond Insights Sdn. Bhd., 2014. 30
4. Consumer Discretionary Encompasses those industries that tend to be the most sensitive to economic cycles. Its manufacturing segment includes automotive, household durable goods, textiles & apparel and leisure equipment. The services segment includes hotels, restaurants and other leisure facilities, education and specialized consumer services, media production and services, and consumer retailing and related services. Copyright Beyond Insights Sdn. Bhd., 2014. 31
5. Consumer Staples Comprises companies whose businesses are less sensitive to economic cycles. Manufacturers and distributors of food, beverages and tobacco and producers of non-durable household goods and personal products. Food & drug retailing companies as well as hypermarkets and consumer super centres. Copyright Beyond Insights Sdn. Bhd., 2014. 32
6. Healthcare Encompasses two main industry groups. Companies who manufacture health care equipment and supplies or provide health care related services, including distributors of health care products, providers of basic healthcare services, and owners and operators of health care facilities and organizations. Also includes companies operating in the health care technology industry. Companies primarily involved in the research, development, production and marketing of pharmaceuticals, biotechnology and life sciences products Copyright Beyond Insights Sdn. Bhd., 2014. 33
7. Financials Contains companies involved in activities such as banking, mortgage finance, consumer finance, specialized finance, investment banking and brokerage, asset management and custody, corporate lending, insurance, and financial investment, and real estate, including REITs Copyright Beyond Insights Sdn. Bhd., 2014. 34
8. Information Technology Covers the following general areas: Technology software & services, including companies that primarily develop software in various fields such as the Internet, applications, systems, databases management and/or home entertainment, and companies that provide information technology consulting and services, as well as data processing and outsourced services. Technology Hardware & Equipment, including manufacturers and distributors of communications equipment, computers & peripherals, electronic equipment and related instruments Semiconductors & Semiconductor Equipment Manufacturers. Copyright Beyond Insights Sdn. Bhd., 2014. 35
9. Telecommunication Services Contains companies that provide communications services primarily through a fixed-line, cellular, wireless, high bandwidth and/or fibre optic cable network. Copyright Beyond Insights Sdn. Bhd., 2014. 36
10. Utilities Encompasses those companies considered electric, gas or water utilities, or companies that operate as independent producers and/or distributors of power. Copyright Beyond Insights Sdn. Bhd., 2014. 37
What is Index? When most people talk about "the market," they are actually referring to the Index. An Index is used as a Statistical measure of the changes in a portfolio of stocks representing a portion of the overall market Each index has its own Calculation methodology and is usually expressed in terms of a change from a base value. Index cannot be traded directly. It has to be traded using derivatives like CFD, Options and Futures. Copyright Beyond Insights Sdn. Bhd., 2014. 38
Top 3 Major Indices in US? 1. Dow Jones 30 2. S&P 500 3. Nasdaq Composite The Nasdaq Composite Index represents all the stocks that trade on the Nasdaq stock market. Don't confuse the Nasdaq composite with the Nasdaq 100, which is made up of the 100 largest non-financial companies on the Nasdaq stock market. Websites that shows Nasdaq latest quotes refer to Nasdaq Composite index. Copyright Beyond Insights Sdn. Bhd., 2014. 39
Key Indices Worldwide WORLDWIDE Copyright Beyond Insights Sdn. Bhd., 2014. 40
What is ETF (Exchange Traded Fund)? An Investment Fund that can hold a basket of assets such as stocks, commodities, bonds. ETF can be traded like a Stock in the market exchange. ETF trades close to its Net Asset Value over the course of the trading day. Key Advantages of ETF : Simple High Liquidity Diversified Copyright Beyond Insights Sdn. Bhd., 2014. 41
The Major 4 Index ETF s in US 1. SPY (SPDR S&P 500 ETF) 2. IWM (ishares Russell 2000 Index Fund Small Cap) 3. QQQ (Nasdaq 100 Trust Shares ETF) 4. DIA (SPDR Dow Jones Industrial Average ETF) Copyright Beyond Insights Sdn. Bhd., 2014. 42
Popular Sector ETF (SPDR Select Sector ETF s) Sector Basic Materials Consumer Discretionary ETF Symbol XLB XLY Consumer Staples Energy Financial Healthcare Industrial Technology Utilities XLP XLE XLF XLV XLI XLK XLU Copyright Beyond Insights Sdn. Bhd., 2014. 43
Popular Commodity ETF Commodity ETF Symbol ETF Name Gold GLD SPDR Gold Trust Silver SLV Silver Trust Oil USO United States Oil Fund Copyright Beyond Insights Sdn. Bhd., 2014. 44
Top Volume Real Estate ETF REITS (Real Estate Investment Trust) is a security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages. REITs receive special tax considerations and typically offer investors high yields, as well as a highly liquid method of investing in real estate. ETF Symbol IYR VNQ ETF Name Dow Jones US Real Estate ETF Vanguard REIT ETF Copyright Beyond Insights Sdn. Bhd., 2014. 45