First steps to becoming an equity investor

Investing in equities can seem daunting from the outside looking in but it doesn’t necessarily have to be so. (Rawpixel pic)

Entering the world of equity investing, or even investing in general, can seem daunting at first. But with an understanding of the rules and the basic principles involved, you will soon be equity trading with ease.

Here are some pointers to get you started.

Get a broker

For equity trading, the first thing you need to do is find a broker. This is the person whom you will tell to buy and sell equities for you.

It is easy to find a list of local brokerage firms online. But before deciding on a broker, make sure they are registered and have a good reputation.

Brokers charge a fee for their services – typically a percentage added on to the amount of your equity investment.

For online trading, you also need to open a trading account with a broker, which can be a cheaper option instead of phoning your broker with instructions each time you want to buy or sell.

Open two accounts

You need to open two accounts with your broker:

• A Central Depository System (CDS) account.

• A trading account.

These two accounts must be linked to trading, and your broker will help you to complete this process quickly and easily.

Opening a CDS account

A CDS account can be opened via a stockbroker. The forms to do so are available on the Bursa Malaysia website and must be submitted through the stockbroking firm handling your account.

This account, often called a securities account, is to manage your equity holdings – all the incomings and outgoings. It records all transactions electronically in one easily accessible, secure and convenient place.

Opening an equities trading account

This account is also simple to open and a broker will help with this. How your money moves with each transaction is reflected in this account – the initial deposit, the money coming in and out from buying and selling equities as well as the broker fees.

Once these two steps are completed, you are ready to start trading equities.

Check the reputation of the broker before depositing money with them and before trading equities. (Rawpixel pic)

Purchasing equities: Where and how to buy

Equities are bought and sold through a stockbroker, who acts as a middle man between the investor and the stock exchange. You can choose between a full-service broker or a discount/online broker.

A full-service broker will give suggestions as to which equities to buy based on their research. These brokers are more expensive but provide more guidance and advice.

An online broker will simply place your orders to buy and sell equities specifically as they are told to and are a cheap alternative if you prefer to do your own research.

What you should look out for

Check the reputation of the broker before depositing money with them and before trading equities.

Even with the best broker, mistakes can be made on the account, so it is important to monitor account statements and check that the transactions are correct.

If you notice an error, immediately contact your broker to have it corrected. Log the complaint with the broker and if the matter is not resolved, contact the Securities Commission Malaysia or Securities Industry Dispute Resolution Centre for an independent review.

Keeping track of your equity portfolio

After each transaction, you will receive a trade confirmation and you will receive monthly statements for all your trading activity – review these documents carefully to check they are correct.

If you have any questions, do not hesitate to contact your broker for clarification.

Remember, there are risks involved in equity investing. In the worst case, if the company goes bankrupt, the maximum you risk losing is the total amount you invested.

It is not a good idea to invest all of your money in just one stock. It is best to diversify your portfolio for the best return on your investments.

This article first appeared in The New Savvy.

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