Basics of Stock Investment in Malaysia

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So, you want to invest in the stock market in Malaysia? Do you know where you should start and when? Or are you just clueless? Know this for sure, investing in the stock market is for everyone and not just financial analysts but there is some knowledge that you must-have for the Malaysian stock exchange.

Basic Guide to Investing in Shares

Make no mistake about it. The share market can be a cruel marketplace if you do not have the basic information of how it works and what it can do to your money. Investing means to put your money in a place with a hope of multiplying in the future. There are many ways to do this including fixed deposits, insurance, futures and most notably in the stock market. How this works is that you buy a share at a certain price hoping that it will increase in the future. When it reaches a certain price, you sell the share back and make a profit based on the difference. The same concept is applied to losing money (when you buy at a higher price than when you sell).

Bursa Malaysia – A Must Know

In every market, there is a local bourse that handles and manages the stock market of the country. Bursa Malaysia is the Malaysian bourse. It is a fully integrated exchange with complete services catered for anyone who needs from an exchange that covers among others, clearing and trading of stocks. It is open on every working (office) days with the following hours:

  • Pre-Open – 8.30 am – 9.00 am
  • Continuous Trading – 9.00 am – 12.30 pm
  • Pre-Open – 2.00 pm – 2.30 pm
  • Continuous Trading – 2.30 pm – 4.45 pm
  • Pre-Close – 4.45 pm – 4.50 pm
  • Trading at Last 4.50 pm – 5.00 pm
  • Close – 5.00 pm

Take note that Bursa Malaysia is closed on weekends and public holidays. You must be aware of the timing so that you know when you can and cannot make a transaction through your broker. The basic rule of thumb in investing stocks in Malaysia is that you must go for 1 lot which is 100 shares of a certain counter. For instance, if you are going to buy 1 lot of shares from Air Asia with the current price of RM4.50, then you will need to pay RM450 for 1 lot for every transaction.

What is a CDS Account?

The very basic requirement for investing in the share market is to have a CDS account. This stands for Central Depository System which is under the management of Bursa Malaysia. For individuals, you can choose either to open any of the 2 types of CDS accounts which are:

  1. Direct CDS Account
  2. Nominee CDS Account

To open a CDS account, you will need to do so through a licensed stockbroker like Rakuten Trade or most of the banks. Most brokers will require you to visit them while there are those that allow you to open an account online as well.

What are the accounts available?

There are 2 types of accounts that you can choose from which are cash and margin accounts respectively. What they basically entail is that a margin account generally means that you are buying shares through money that is not yours. This is when you need to use some form of security as collateral before you can start trading. In simple terms, you use leverage to trade shares in which you are actually buying shares with money you do not yet have. In the situation where you register a profit, then you might have some money in your account. This is something you need not have to worry about if you are using a cash account.

What is a margin call?

In a situation where you use a margin account, a margin call might occur. This is when you need to deposit some additional money into the account in order to bring up the minimum maintenance margin so that you can continue trading. Your broker will require you to ‘top-up’ your account to the threshold or they have the right to sell off your shares at whatever price they wish (which means it will be at a loss). A cash account means you will put money into the account and will not have to risk this.

How to start trading?

In most cases, the brokerage fee is 0.1%. Some brokerage has an ‘either-or’ clause like RM10. If that is the case, you would most likely want to trade RM10,000 per transaction since that is the amount they will charge you anyway (RM10). Other fees that you must be aware of include:

  • Stamp duty – Mandatory fees by the government which is RM1 for every RM1,000 and a maximum of RM200
  • Clearing Fee – This is charged by Bursa Malaysia which is 0.03% of the value of shares (contract value) up to RM1,000

Start Trading

Once you have the accounts ready and when you have figured out all the charges involved as well as the minimum amount you need to start, then you can start trading. There are several methods you can choose to start trading in the stock market. The best advice is to not be overly excited or greedy. There is no short-cut to profiting from the stock market. You must always do your homework and research. You can choose between the Main Market or the ACE Market. But check out stocks from the brands that you know. These names are like Nestle or Air Asia which are known as blue-chip stocks. In other words, they are usually quite high priced. But if you are thinking of learning a bit more, then you can find out about methods such as technical analysis which helps you to make forecasts based on past movements of certain stocks.

Influencing factors in Stock Market Investment

It is very typical that when anyone mentions investment, the thought will trail towards trading shares in the stock market. This is very true as stocks are one of the most traded forms of commodities in the world today.

To understand how significant is shares, the stock market actually moves the economy of the country. When perceived collectively, stock markets around the world actually move the global economy. As such, it is one of the most important platforms for any government to ensure that there are enough funds in their countries respectively.

How does it work?

The word shares means a part of the company. It is the funding that any company needs to offer their product or services to the market. When a company have more money, their shares become more valuable.

This means that when you buy a stock from the company no matter how big or small the scale is, you become a shareholder. This is where buy into the company and become one of the many owners which could run into the millions. In other words, you actually have a say in the running of the company and its operations. You hold a voting voice on who should be sitting in the directors’ board and run the company.

In a lot of cases, shareholders become unhappy with the current management of the company and have the collective power to vote them out.

Where do you get your profit?

Stocks are exchanged and changes hand in this trading process. For every share that you acquire, someone would have to sell it. The exchange in Malaysia is operated by Bursa Malaysia. That is where buyers and sellers convene and trade shares.

What are the risks?

Investing into stocks have several levels of risks. This depends largely on what type of shares you are buying. In Malaysia, there are certain types of shares known as Blue Chips. These are stocks that you will buy and keep until the price is good enough to sell.

This does not necessarily apply only to blue chip shares as you can shares from smaller companies too. When you do this, you spread the risk of your investment. By keeping the shares, you monitor the prices until you are ready to cash out and earn a profit. However, some companies might liquidate after several years which might cause your shares to be worthless.

On the other hand, you can trade shares on a more real-time basis. This is at times called contra trading. You buy several blocks of shares for a short period of time (usually 5 working days) and you have to release or sell them back within that time.

You then make the difference if the share price is higher than the point when you bought it. This will be applicable vice versa. Using contra trading can be quite stressful as you need to monitor the market very closely or you might run into a loss very quickly. One of the best methods to do this is to use online platforms and automatic alerts.

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