A Singaporean’s guide to buying stocks
Ok. I lied. This post is not going to be just about buying stocks. Rather what I will try to cover will be how to make purchases of the various asset classes.
By the end of this article, you would have an overview of
- What are brokerages and why do you need them
- SG brokers vs Overseas brokers
- Order types and what do they mean
What are brokerages
In essence, brokerages are like shopkeepers. When you want to buy groceries, you go to the supermarket. When you want to buy assets (financial assets), you execute your orders through a brokerage.
The broker then buys it for you and the asset is either transferred to your account or held for you. This distinction is important and we will cover why later.
SG brokers vs Overseas brokers
Firstly, you can only buy stocks on SGX through the Singapore brokers. Overseas brokers such as Interactive Brokers might have access to SGX but you can only trade if you declare that you are not a Singapore resident.
A short but non-conclusive list of the brokers here
- Philips (POEMS)
- DBS Vickers
- Standard Chartered
- UOB Kay Hian
Personally, I find most of them to be similar in fees and structure, so go along with whichever is probably the most convenient for you. (Especially after Standard Chartered made changes in their pricing last year)
However, do take note that for Standard Chartered, the stocks are held for you as on a custodian basis and are not deposited into your CDP.
For Overseas brokers, if you have more than US10,000 I would recommend Interactive Brokers, it is cheap, reliable and offers access into almost any market.
Even small hedge funds use it. However, on the flip side, there is less hand-holding as well.
There are essentially 3 main types of orders you can use (Limit, Market, Stop).
A limit order that you place is an at that price or better order. If you place a buy limit order on say Stock A at $3.02, it will only buy the stock for you if price dips below that. When one uses a limit order, though you might get a better price, there is also a chance of you losing the trade as the price never trades down to your level.
A market order is an order at the current prevailing price. If a stock is trading at 3.00/3.01 (bid/ask) a market buy will make you buy at 3.01. Thus, in using a market order, you always end up paying the bid/ask but it ensures that you get into a trade.
Finally, a stop order is an order to execute after a price has been breached. If you place a stop order for a stock at $4, the order will trigger into a market order after the stock breaches past $4. Stop orders are therefore usually used for momentum trades.
My personal recommendation is that if you are constructing a passive portfolio, just place limit orders. Stop orders are used to catch momentum trades, which chances are, you are not one.
What does this mean for you
First, decide if you want to buy SG financial assets or overseas (US/UK etc) assets.
Second, choose your broker (cost, platform, support should be points of consideration)
Third, decide how you are going to going construct your portfolio and your investment schedule (are you going to be putting in money every month? etc)
Personally, I am an advocate for worldwide diversification. Also in looking at the range of assets available in Singapore, it just does not seem as attractive as assets overseas.
For example, retail accessible corporate bonds in Singapore is priced extremely expensively compared to credit elsewhere (Think Aspial’s 5.25% yield)
Moreover, while equity markets worldwide have rallied tremendously (SPX at 2300, about 1.5x its peak at 2008), the STI is still only at 3,100, below its 2008 peak. The general lacklustre performance here is worrying.
My take: By being and probably working in Singapore, our income stream is already somewhat correlated with Singapore’s economic performance. I would want to gain some diversification away from such a common factor and obtain overseas exposure instead.