Introduction

One of the hot topics that is debated during the COVID-19 pandemic is the stock market as Bursa Malaysia has announced that the number of new central depository system (CDS) accounts opened in January to July 2020 soared 125% to some 218,000, from around 97,000. Hong Leong Investment Bank (HLIB) Research’s note quoted Bursa senior vice-president of retail marketing Patrick Ng, saying that there is roughly 2-3 months backlog of pending new accounts of about 100,000 and 65% of these new accounts compromise millennials. Recently, the stock market also records a new high daily trading volume for 27 billion.

During these few months, there is a lot of news on the stock market. For example, glove stocks have skyrocketed to the new high stock price that they have ever achieved. A few local firms had subsequently transformed from their conventional business and expanded into mask-related manufacturing, e.g. Notion VTec Berhad. Not long ago, Russian had developed its “first” COVID-19 vaccine which caused significant share price movement in our local pharmaceutical companies such as Duopharma Biotech Bhd. and Pharmaniaga Bhd.

This could happen as most people start divesting in stock market-related counters (glove, mask, pharmaceutical) to COVID-19. Thus, expecting to get a return because they now have lower opportunities for fixed deposit deposits after the interest rate cut that caused the stock market to become even more volatile when retailers’ participation rate is high.

As a disclaimer, there is no buy or sell advice covered in the article. Before you start hopping on the bandwagon, you should at least familiarize yourself with some basics of trading first. In this article, we will be walking through two main types of trading (real asset & Contract for Difference) and their trading platforms.

Real asset Trading

Investors who wish to trade securities listed on Bursa Malaysia (trading a real asset) must have a CDS account. According to Bursa Malaysia, the definition of the Central Depository System (CDS) is a system that is owned and operated by Bursa Malaysia Depository Sdn. Bhd. CDS account used to electronically record any transaction made by investors. Before even opening a trading account, you should take note of the difference between the two types of CDS accounts, namely the Direct CDS account and the Nominee CDS account. The descriptions of both the CDS account are summarized as below:

Direct CDSNominee CDS
Account holder’s name Directly under shareholder’s name Under Broker’s name  
Dividend PaymentCredited directly to shareholder’s bank accountCredited to the bank trust account
Annual ReportAutomatically mailedUpon request
Right to attend AGMYesYes, with the bank’s consent letter
Initial Public Offering (IPO) EligibilityEligibleNot eligible
Share TransferTo own and relative accountTo own account only

            

Table 1: Description of Direct CDS account and Nominee CDS account (Source:https://1-million-dollar-blog.com/comparison-between-direct-cds-and-nominees-cds-account/)

Direct CDSNominee CDS
Maybank, RHB, Ambank, CIMB, etc.Rakuten Trade


Table 2: Examples of Platforms for CDS account

In short, people who prefer to have more controllability on their asset could opt for the Direct CDS account because they could enjoy the benefit of receiving information such as the company’s annual report. On the other hand, people who look for a hassle-free opening trading account process could opt for the Nominee CDS account since they do not have to deal with all the related paperwork and can open an account with the convenience at their fingertips.

CFD Trading

In addition, a trader can also invest in the overseas stock market without purchasing the real asset but the CFD (Contract for Difference). According to Investopedia, CFD is an agreement between an investor and a CFD broker to exchange the difference between the time the contract opens and closes in value of a financial product. In term, a CFD investor never actually owns the underlying asset but instead receives revenue based on that asset’s price change.

The benefits of trading the CFD include the leveraging feature, which allows you to gain greater exposure with less capital. However, there are two sides to each coin. Leveraging may also mean a higher risk for your investment, so one should do their diligence and consider using this function depending on their tolerance to the risk. CFD trading also allows one to go both long (expect the price of an asset to appreciate) or short (expect the price of an asset to depreciate) and take advantage of both movements in the market. CFD traders can easily diversify their portfolio with ease by trading a variety of markets and assets.

Usually, there is no commission charge for CFD trading. However, a trader is offered two prices based on the value of the asset to buy (bid) price and the sell (ask) price. For example, if an Apple Inc. (AAPL) the stock contract is to be purchased, the purchasing price will always be higher than the current underlying value from the selling price and will always be lower. The difference between these prices is called the spread. This implies a disadvantage of CFDs is the immediate decrease of the investor’s initial position which is reduced by the size of the spread upon entering the CFD (assuming one sells the stock straightaway after the buy, one will lose money due to the spread). 

Suggested trading platforms for real asset trading

As a disclaimer, the suggested platform is just based on my personal experience with a few trading platforms and you should make your own decision to choose the platform that suits you the most.

If you are a first-time trader and you are interested in the local stock market, Rakuten Trade is a good option for you, as it is easy to sign up and offers one of Malaysia’s lowest brokerage fees.

Table 3: Brokerage Fees for Rakuten Trade(Source: https://www.rakutentrade.my/fees)

Rakuten Trade is also the first in Malaysia that offers online account opening without the need of travelling to a bank or anywhere to open an account. Rakuten Trade stock trading accounts are Nominee CDS, as the article mentioned above, you do not have to deal with all the related paperwork.

Conclusion

In conclusion, this article covered CDS accounts for real asset trading (Direct and Nominee account) and the CFD trading without purchasing real assets. There are certainly many other types of trading, platforms and learning to choose the suitable platform in this article is only the very first step to trading. To achieve a consistently good result in trading, it requires patience, skills, experiences and etc. 

Congratulations if you make your first step to trade after reading this article. Although it is never too early to start, note that there is always a risk in the volatile stock market. Do not forget to trade at your own risk and do proper risk management.

You can also register to trade by opening a nominee account with Rakuten Trade here to get free Rakuten Trade Points.


Researcher: Ken Yong
Editor: Arivaasaran
Reviewed by: Millen Lau

Download the article: The-Basics-of-Stock-Market-Trading.pdf