How to Trade Shares or Stocks in Bursa Malaysia

WHAT IS THE LOWEST BROKERAGE FOR INTERNET TRADING AND CASH UPFRONT TRADES?

In this posting dated 10 August 2008, I want to let my reader know WHAT IS THE LOWEST BROKERAGE FOR INTERNET TRADING AND CASH UPFRONT TRADES that is available in the market when you trade shares in Bursa Malaysia.

Most Investment Bankers and Universal Brokers has a ‘gentleman’ agreement on the ‘Floor’ or Minimum brokerage for share trades using internet and shares trades for cash upfront. Here are the general guidelines:

(1) If a share is bought or sold using the stockbroker’s internet facility, stockbrokers will give a 30% discount on the standard brokerage rate with the minimum charge at RM28.00; (2) If a client has cash or trust in his share trading account prior to his Purchase order, the client can request for a 30% discount on the standard brokerage rate with the minimum charge also at RM28.00;

Note that Cash Upfront discount is only for Buy order. Sales order is not entitled for any discount as it is not included in the Ministry of Finance Budget announcement.

(3) If a client has cash in his share trading account and he key in his Buy order throught the internet, some stockbrokers will give you a double discount with the minimum brokerage still at RM28.00;

Example: If you have RM10,000 cash deposit in the share trading account before you Buy 10,000 shares at RM1.00 using the internet, your standard brokerage charge is RM10,000 x 0.6% = RM60. Your brokerage after the double discount is RM60 x 30% x 30% = RM29.40.Note: Not all stockbrokers will give you the double discount. The major stockbrokers only agreed on the minimum brokerage of RM28.

(4) If you have applied for ‘Day Trade’ rate for your account and if you buy via internet and/or do a cash upfront purchase, you can request for the discount with the minimum brokerage at RM28.

Note: A ‘Day Trade’ account is when you buy and sell the same share on the same trading day. Bursa guideline allow you to request for Day Trade brokerage rate of 0.15%.

Since the rate is already at 0.15%, most stockbrokers will only reduce the brokerage rate upto 0.1%.

SPECIAL BONUS!

Hong Leong Bank has offered the LOWEST brokerage rate in Malaysia. Only RM12!!! for Internet Trading.

Caveat : There is “Terms and Conditions Applied” statement in their advertisement. I don’t know what are their Terms and Conditions in order for you to get the RM12 brokerage rate as I don’t have Share Trading Account with Hong Leong Securities (their stockbroking subsidiary). My guess is that the Internet Purchase must also be Cash upfront and you would probably have to open a saving account with Hong Leong Bank in order for the stockbroker to directly debit your saving account for your purchases. My guess only. You will have to check with the bank yourself whether their rate is the THE LOWEST BROKERAGE FOR INTERNET TRADING AND CASH UPFRONT TRADES.

IMPORTANT NOTICE

I am in the process of changing the look of my site. I hope it will not cause any disruption but there will probably affect the look temporary.

This is my Part 3 of HOW TO START TRADING series.

If you missed my earlier posting, you can read them from the link below

Part 1 : HOW TO OPEN CDS AND TRADING ACCOUNT

Part 2 : BUY, SELL AND CONTRA

In this part, I will outlined the Fees and charges allowed by Bursa and Securities Commission (”SC”).

There are 4 basic fees/charges. When you buy stock the fees are added (+) to your gross value and when you sell stock the fees are deducted (-) from your sales value.

1. STAMP DUTY

Every contract will be charged a stamp duty which Brokers collect on behalf of the Government. Brokers will collect the stamp duty for onward payment to the Stamp Office. The rate is RM1.00 for every RM1,000.00 gross value of the contract and roundup to the nearest dollar.

For example; if your contract gross value is RM1,001.00, the stamp duty is RM2.00. If the contract gross value is RM999.00 the stamp duty is RM1.00.

Note: Gross Value
Before I go to explain the next type of fees, let me explain what is the gross value of the contract. The gross value is the price multiply by the quantity of the shares. example: RM1.50 x 1,000 stocks = RM1,500.00 gross value.

However there is a maximum quantum for Stamp Duty that can be charged which is RM200.00 per contract. If you contract value is RM300,000.00 and based on the calculation of dividing it into RM1,000.00, the value is supposed to be RM300.00 (ie. RM300,000 / 1,000) but but the maximum amount added to your contract note is RM200.00.

Note: You might be wondering what if I buy or sell the same stock but for different prices in the same day. For example; if you have 5 BUY contracts of stock A and assuming each contract attracted the maximum stamp duty of RM200.00 then you will have to pay a total of RM1,000.00 as Stamp Duty (RM200 x5) ? Lucky for you, NO!

You can request to your Brokers to consolidate all the Buy contracts of the same stock in the same day to ONE single contract. Therefore you will have only ONE contract note and you will only need to pay the maximum total of RM200. Generally all Brokers would have auto consolidated your contracts for the day but …..just in case….do remind your Brokers to consolidate your contracts. Ironically there are people who wanted that all their same day trades (BUY AND SELL) to be in each separate contract. Some of the known excuses is that the client buy the share on behalf of family members or friends.

2. CLEARING FEE

The Clearing Fee is charged by BURSA as the clearing house of all trades done. It is 0.04% of the contract gross value and upto maximum RM500.00. The Clearing fees is not round up or round down. If you contract gross value is RM23,500.00, your clearing fee is RM9.40 (RM23,500 x 0.04%).

Note: With effect from 1st January 2008, the Clearing Fee will be REDUCED from 0.04% to 0.03% of the gross value of the contract BUT the maximum sum has INCREASED from RM500 to RM1,000.

3. BROKERAGE / COMMISSION

The brokerage is sometime referred to as commission and this is the fees collected by Brokers. The Brokers is required to share the brokerages with the commissioned based Dealer’s Representative (”DR”) that handled the specific trades. Some Brokers also share the brokerages with their Salaried DR. This sharing is standard which is 40% to commissioned DR and 60% to Broker as per Bursa Rules and as per Standard Remisier’s Agreement which all commissioned DR signed when they joined the Broker. While the sharing ratio for salaried DR is fully negotiable or as decided by the Brokers.

The maximum amount allowed to be charged for normal trades (also known as market deal) is 0.7% of the gross value and the minimum amount is 0.6% or RM12.00, whichever is higher. As for Off-Market Deal, the maximum rate is also 0.7% but the minimum rate is half (50%) of the minimum rate of Market Deal (50% x 0.6% = 0.15%) or RM12.00, whichever is higher. As for Loan Stock, the minimum rate is RM2.00 for Market and Off-Market Deal.

Due to the competitive nature of the business, all Brokers will charge client the minimum brokerage rate for Market Deal (0.6%) and 0.15% for Off-Market Deals.

HOWEVER, for gross contract amount that is above RM100,000.00, the minimum brokerage rate allowed for market deal can be lower than 0.6% which is upto the minimum of 0.15%. The rate is decided by market demands. In my next blog, I will explain what is Market and Off-Market Deals. So you can see why I mentioned in the above that you should remind your Brokers to consolidate your contracts for the same stock for the same day so that you can get the lowest or the best possible brokerage rate. By consolidating, you total gross value for the day could be above RM100,000 therefore your minimum brokerage has been reduced from 0.6% to 0.3%. That is a great saving!

Note: With effect from 1st January 2008, brokerage charges for Cash Upfront and Internet trades is FULLY NEGOTIABLE irrespective of the gross value of the contract. If you are net savvy, you can input your BUY and SELL order via the Brokers’ Internet Trading Portal thus requesting for lower brokerage amount. This is good news for investors!

HOWEVER the bad news is that for those who trade via their DR, the minimum brokerage charges which was RM12 for stocks other than Loan Stock has INCREASED to RM40.

What is Cash Upfront trades?

It means that if you have deposited X amount into the Brokers account BEFORE you Buy stock for value not more than X amount, then you are entitled to request or negotiate for lower brokerage charges but still within the minimum RM40.

For example; you have a credit in your Trading Account of RM100,000 BEFORE you Buy shares with a total Net Contract amount of RM90,000. In normal calculation your brokerage charges is RM540 (RM90,000 x 0.6%). But since you already have cash or a credit in your Trading Account, you can request for a lower brokerage charge of below RM540.

TIPS : According to the new brokerage charges announced by the Government in 2007 Budget Report for Cash Upfront trade, you can actually ask for a brokerage charge that is lower than the minimum brokerage of RM40! Don’t tell anyone you get your tips from me! After you have benefitted from this Tips, I would be very happy if you can make a donation to my kids Gift Funds in the above menu.

This is the end of Part 3 of HOW TO START TRADING STOCK IN BURSA MALAYSIA series entitled BURSA MALAYSIA STOCK TRADING FEES AND CHARGES.

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