How to Trade Shares or Stocks in Bursa Malaysia

ProTrade read an article that states that the Stock Exchange of Singapore (SGX) has introduced incentives designed to attract algorithmic traders to the city-state.

What is Algorithmic Trading?

According to Wikipedia;

Algorithmic trading, also known as algo, automated, black-box, or robo trading, is the use of computer programs for entering trading orders with the computer algorithm deciding on certain aspects of the order such as the timing, price, or even the final quantity of the order.

In general terms, it basically means the coming to an end the need for manual key-in of orders by Dealers as all the orders will be send by computers to the exchange.

It was reported that SGX has moved its securities market to a new, enhanced trading system to attract algorithmic and high-velocity traders since July 2008. According to SGX data, algorithmic account for about 12% of the value traded in equities on SGX and about 18% in derivatives.

Algorithmic trading is It is widely used by hedge funds, pension funds, mutual funds, and other institutional traders to divide up a large trade into several smaller trades in order to manage market impact, opportunity cost, and risk.

Many of the big exchanges in the world allow algorithmic trading such as London Stock Exchange (LSE).

A third of all EU and US stock trades in 2006 were driven by automatic programs, or algorithms, according to Boston-based consulting firm Aite Group LLC and that figure will reach 50 percent by 2010.

According to a study by Boston-based TowerGroup in 2006, a division of MasterCard Worldwide, algorithmic trading will push direct market access trading (ie. trading without broker intervention) to 38% of total buy-side flow by 2008. In 2006, 27% of U.S. hedge fund trading, and 16% of trading by large institutional investors, flowed through algorithms. A recent IBM study suggests that around 40% of the trades made on the London Stock Exchange in 2006 was originated from algorithmic trading systems.

Bursa has been testing a new Broker Trading System (BTS) that will allow matching of trades real-time (ie. every second) instead of current matching period of every 10 seconds. With the new platform, Bursa will be introducing Direct Market Access (DMA) to clients. Eventually I believe Bursa Malaysia will allow algorithmic trading. However there is the policies and legal hurdle that need to be made as many of the current rules and policies discourages ‘over active’ market movers.

By allowing algorithmic trading, the market can drastically move either ways, up or down, depending on worldwide, local economic and political sentiments. Although it will create much velocity, it will create higher risk for losses due to programmed selling.

The other significant impact with algorithmic trading is that it will affect the career of Dealer’s Representative or Remisiers. There is no need for their services anymore, period.

So what will they do?

For those remisiers that have moved from being just ‘order entry clerk’ to providing advisory work for clients, they will survive in the new area of needs. But to those that still just sit around waiting for client to give them orders and executing it in their BFE or those that can only give ‘tips’ or ‘rumours’ of which stocks will moved, they better be prepared for the worse.