Understanding stock trading procedures and fees
Under most circumstances, trading stocks in Bursa Malaysia requires some level of understanding of the procedures and fees before you can begin trading. Whether the prices of stocks that you are trading increase or decrease, there are certain charges that you need to pay which are mandatory charges and hence, you must be well aware of such charges before embarking on your trading efforts. You have to be well aware that the profit and loss of share trading can be very volatile and if you are not careful you could be suffering more loss than expected. This is more crucial if you are not aware of the charges that would incur when you trading shares.
First of all, you must know how stocks are termed under Bursa Malaysia. The Malaysian stock market trades stocks of all its counters using the ‘Lot’ concept. Basically, a Lot is termed as a collection of products or services which will be used to sum out a particular transaction. However, in the financial market, a Lot is referred to as a standardized quantity of shares used in its trading. In exchange-traded securities, Lots are used to show the minimum quantity required by the security for its shares to be traded. Stocks traded under Bursa Malaysia is usually referred to 1,000 shares of a specific counter.
A Board Lot is used to facilitate easier and more efficient trading practices. Basically, a Board Lot is a number of shares which have been standardized by the stock exchange which will be used as a trading unit. By adopting Board Lots, there will be more consistency and would eliminate ‘odd lots’ which will be cumbersome to manage. In most cases, a Board Lot is made up of 100 shares although some stock exchanges would use other standard numbers. Board Lots are easier to trade where it would be easier to buy and sell 2 Board Lots than 293 shares.
On the other hand, an Odd Lot refers to the number of shares which are smaller than the permitted unit of trading of the stock market. Odd Lots are common when the stock exchange allow such trading methods and it would create odd numbers of shares at the end of each trade. Under Bursa Malaysia, the trading of Odd Lots is not allowed.
What do you need to trade shares on Bursa Malaysia
Trading shares on Bursa Malaysia is very easy and straightforward. All you need to do today is to open a share trading account with any of the many stockbroking firms around. Most banks today offer such services where you can open the account with them which will then be linked to your own personal savings or current accounts to facilitate easy payment transactions.
The share trading account is known as the CDS (Central Depository System) account where you will then be given a CDS account number. After that, your account will be managed by a particular remiser or broker in laymen terms. You can then trade shares directly through your appointed remiser.
In order to facilitate your trading of stocks, you will have to provide the following information to your broker:
a. The Stock name of Stock Code for instance TATGIAP is the stock code for Tatt Giap Group Berhad
b. The stock units that you would like to buy or sell, which is defined and addressed in lots or board lots
c. The price you would like to buy or sell, which would be at the current prevailing market value of the stock
Once you have provided the information above to the remiser, it will be keyed into the system and when the transaction is successful, your remiser will let you know. After that, any deficit would need to be paid while surpluses will be credited in your account.
You must be at least 18 years of age to trade shares in Bursa Malaysia and upon receiving your confirmation of your CDS account, you can start making money from the stock market. The CDS account will enable you to trade shares, trade non-equity counters like warrants and bonds. Basically it is like a bank account where you keep shares that you have bought and sell them in a future date.
Apart from going through your remiser, you can also start trading shares through online means where you can buy and sell shares using the system which will be provided to you through your remiser.
Charges involved when trading shares
When you buy a certain share, it will be credited to your CDS account at 9am on the Transaction Date+3 or T+3 which means that you will have to make your payment at 12.30pm on that day or the share will be forced sold an you will have to bear any deficit.
The allowed brokerage fees are a maximum of 0.7% of the value of total shares traded. Under most circumstances, most remisers will charge 0.6% brokerage fees while there is also a 0.04% of Clearing Fees involved for any contract value subject to an RM500 maximum cap. Stamp Duty is RM1 for every RM1,000 worth of stock value traded. Once all that is completed, the contract notes will be sent out to finalize and confirm the trade.
How to calculate the fees?
To calculate how much you need to pay when buying a certain share, you would have to consider all the options available.
As mentioned, the following fees are applicable to facilitate the purchase of a particular share:
a. Brokerage fee – 0.07%
b. Clearing fee – 0.04%
c. Stamp Duty – RM1 per 1000 shares
Assuming that you are buying a share whose price is at RM3.00 and you would like to buy 2 lots (ie: 2,000 shares)
The stock value would be RM3.00 x 2,000 = RM6,000
Stamp Duty – RM6 (as total is RM6,000)
Brokerage fee – RM6,000 x 0.0007= RM42
Clearing Fee – RM6,000 x 0.0004 = RM2.40
Total Fee = RM6,000 + RM6 + RM42 + RM2.40 = RM6,050.40
Total paid for each lot – RM6,050.40 / 2 = RM3,025.20