Trading Limit and Temporary Limit for Trading Stocks in BURSA MALAYSIA
Filed Under (Trading Account, Trading Limit) by Webmaster on 25-08-2008
Tagged Under : Bursa Malaysia, credit limit, dealer's representative, temporary limit, Trading Limit
This is Part 5 of my HOW TO START TRADING STOCK IN BURSA MALAYSIA series of articles.
If you missed my earlier posting, you can read them from the link below:
PART 1: OPENING OF CDS AND TRADING ACCOUNT
PART 2 : BUY, SELL AND CONTRA
PART 3 : BURSA MALAYSIA STOCK TRADING FEES AND CHARGES
PART 4 : MARKET AND OFF MARKET TRADES IN BURSA MALAYSIA
In Malaysia there are various type of Trading Account that you can use to trade stocks listed in Bursa Malaysia. The most basic Trading Account is called ……the Normal Trading Account…..what do you expect!
In a Normal Trading Account the Brokers will usually assigned certain “Credit or Trading Limit” to you based on the information you have provided on your Account Opening Form such as occupation, annual income and networth. Each Broker has different set of criteria and policies on giving the Credit Limit. Yes, you are right in saying that it is very ‘Subjective’ and could be bias. If you know the owner or the director or the major shareholders of the Broking company, you might be given higher credit limit.
With a Normal trading account, you can only buy upto the credit limit given. For example; if your credit limit is RM100,000 then you can only at any one time have unpaid Buy contracts upto RM100,000.
There are however exception. Most Brokers allow client to request ‘Temporary’ additional credit limit. Therefore if your request for an additional Temporary limit of RM50,000 to your existing RM100,000, you will be able to Buy stocks with total value upto RM150,000.
Those who have experienced trading in Bursa Malaysia might have experienced a situation where your Dealer’s Representative (“DR”) informed you that he has no limit for the day. But what does it got to do with you? You have credit limit to buy but why does the Broker don’t allow me to buy?
As I have mentioned in my posting in Part 1 there are two types of DRs, Commissioned DRs and Salaried DRs. A Commissioned DRs will have to deposit with the Broker collaterals in the form of Cash, Stocks or Bank Guarantee. The DR’s collaterals can either be one or mixture of all three type of collaterals. For each type of collateral the Brokers will given a certain multiple as the DR ‘TOTAL TRADING LIMIT’. The multiples value varies and depends on the Brokers. For example; a DR A in Broker A has RM100,000 cash deposit and has been given a multiple of 10x. DR A will have Total Trading Limit of RM1,000,000 (RM100,000 x 10). Broker B might give a multiple of 11x and Broker C might give 9x. The multiple value can also changed with time as Brokers will given higher multiples after the DR has proven himself overtime with the same Broker.
Based on the above example DR A will ony be able to buy for all his clients upto RM1,000,000. Once all his active trading clients have a total unpaid contracts of RM1,000,000, DR A will not be able to buy anymore. If for example DR A has 100 clients and 20 of his clients have a total unpaid Buy contracts of RM1,000,000 and if you happened to be his client, eventhough you don’t have any unpaid Buy contract with the DR, the DR can’t buy for you until any of DR 20 clients paid or sold their unpaid Buy contracts.
TIPS : It is advisable to open a Normal trading account with more than one DR if you actively trade in stocks in Bursa Malaysia. Some Brokers don’t allow one client to open a separate trading account with another DR of the same company. So you will have to check with your Broker. When you have more than one trading account, you can switch to another DR if one of your DR doesn’t have trading limit for the day.
A DR can also be suspended from Buying for his clients if he has unpaid Contra Losses that exceed his collaterals. These Contra Losses are losses incurred by his clients. As such having more than one DR is a good idea. I mentioned above about Temporary Limit. As long as your DR has sufficient trading limit you can request for Temporary Limit.
The other type of DRs are Salaried DRs. Salaried DRs don’t placed any collaterals with Brokers. The question here is if Salaried DRs don’t placed any collaterals, then how is the Salaried DRs Total Trading Limit calculated?
Some Brokers give their Salaried DRs a fixed Trading limit while some Brokers don’t give their Salaried DRs any Trading Limit. Within the same Broker some Salaried DRs will be given trading limit while others will not have any trading limit. Normally Salaried DRs that handle Institutional Clients will be given trading limit while those handling individual clients will not be given trading limit. However there are exception as some individual clients could be HIGH NETWORTH CLIENT. These are probably Directors of public listed companies or clients who can show their high networth or high income.
You can get higher Credit or Trading Limit than a Normal Trading Account if you open a Collateralised Account.
In my next posting, I will explain what is a Collateralised Account and the different types of Collateralised Account.
Hi Fred,
Your blog is extremely useful and easy to follow for beginner investors in Malaysia. Hope to learn much from you.
Fara,
Thanks for visiting. To be updated on my latest posting, subscribe to my RSS Feed.
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