Saturday, May 14, 2011

Choosing a broker for trading Singapore stocks

Latest update: This post has been obsoleted by a new kid on the block. Standard chartered online trading brokerage has stormed into the Singapore brokerage industry with a whole new pricing. Here is my update.

One of the favorite questions asked by newbies to the stock market in Singapore is "who should I use as my broker"?

This is what I did for myself. I use DBS cash-upfront account primarily for buying Singapore stocks. The price comparison is compelling. DBS cash-upfront charges 0.18% of invested amount or minimum SGD18. This is way cheaper than (0.275% or minimum SGD25) charged by the rest. DBS cash-upfront is 35% cheaper than all the other brokers. 

Why so much cheaper? Where is the catch? The key lies in being cash-upfront. You have to deposit cash upfront into an account with DBS Vickers to buy stocks. DBS Vickers is able to charge lower commission rates because the risk of customer not paying up for his share purchases is zero.

Please note that you cannot buy on contra (buy now, pay 3 days later. Uniquely Singapore) with cash-upfront. That is the catch. However, I hardly think this is a disadvantage. So far, I have never seen a consistent winner in the Singapore stock market using contra. Conversely, I have encountered and read about several market participants getting burnt using contra. It is hard enough to be a market timer. To get your timing right to an accuracy of 3 days is even harder. It is possible to make good profits in one or two occasions using contra. Who doesn't have luck on his side sometimes? But to be profitable consistently by playing contra? I think you will have better chance of getting rich by working hard at your day job.

After shares have been deposited into your CDP(Central Depository) account which occurs 3 days after purchase, they cannot be sold using the cash-upfront account (they can still be sold within 3 days using cash-upfront). So, for the sale of shares, you are free to use other brokers but will have to incur the higher commission rates of 0.275%. If you are a big customer, you can pressure your existing broker to charge you cheaper rates by using the cheaper cash-upfront rates to bolster your bargaining position. Congratulations if you are successful. However, please be very careful when you are using one broker for buying and another broker for selling. It is easy to become confused during periods of active trading and you may accidentally do a naked short-sell. The penalties for naked short-selling in Singapore is hefty. In the worst case, it can be a minimum of SGD1000 or 5% of trading value.

I have accounts with several brokers. This is because of the bad experience with the inadequate reliability of the online trading platform of Singapore brokers, especially on days when trading volume is high. By having several brokers, if you cannot log in on one particular online account, you can still try the others.

Having said that, it is best to keep your trades to one broker, at most two. The buy/sell limits granted by the Singapore broker depends on the volume business he gets from you. If you need more firepower, you have to fire more shots using the same broker.

By using one broker exclusively, you can use that broker to track your portfolio accurately and keep good trading records. A good online platform should update the portfolio automatically. Trading records are vital to traders who want to become good traders. I doubt if any experienced traders reading this post will disagree with that.


41 comments:

  1. I am still a student and still have not opened any account. You mentioned that the rest of the brokers charge 0.275% of invested amount or minimum of $25. Is this correct? How can all the other brokers be charging the same price?

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  2. This comment has been removed by the author.

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  3. It is short-sighted to focus on just the price alone. When choosing a broker, you should consider other things like level of service, information and research provided, good advice.

    This are what remisiers can provide to their clients which a faceless cash-upfront account cannot.

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  4. Hi Gary,

    I agree that good remisiers are worth paying. A newbie can be saved by a good remisier who will be there to smack him when he takes excessive risks. You can be sure that a Singapore remisier will do that because he assumes the credit risks of his clients. Under the contra system, if the clients cannot pay up after 3 days, the remisier has to pay up for them. This is why brokerage commission rates in Singapore can never match that of the US because brokers here have to be compensated for the credit risk.

    With the introduction of the cash-upfront account, the remisiers are under huge pressure to provide better service because they can never match the competitive pricing of cash-upfront. They have to be compensated for the credit risk and customers do not have the confidence to place cash-upfront with their remisiers.

    I am not surprised this post recommending cash-upfront will make remisiers uncomfortable. If I were a remisier, I would feel my rice-bowl is being threatened by the cash-upfront system.

    If you do have the fortune to meet a good remisier, do consider his services. A newbie will benefit from an experienced mentor. However, that should be only in the beginning. If you want to become a good investor/trader eventually, then you have to have your own mind, make your own mistakes and develop your own style along the way. I myself am not fully there although I have gathered plenty of mistakes now. I will boast that my achievements lie in not being wiped out by those mistakes.

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  5. hyom said

    If you do have the fortune to meet a good remisier, do consider his services. A newbie will benefit from an experienced mentor.


    This advice sounds good but impractical. Newbies don't get the attention of remisiers because they make too few trades and do not generate enough business for the remisiers. Why should an experienced remisier spend so much time to mentor a newbie at a cheap price? It is more profitable to serve high net-worth individuals.

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  6. Hi Kang,

    It makes good business sense for the brokers not to engage in a price war. Hence, the commission rates across all the brokers hover around 0.275% or min SGD25.

    DBS Vickers probably made itself unpopular in the brokerage community by introducing the cash-upfront account. I think the worst hurt are the remisiers. Other brokers, particularly those owned by banks, could copy the cash-upfront model to match the competitive rates. The remisiers will not be able to compete. Which client will trust remisiers enough to deposit cash upfront with them? Only banks can command such confidence. But remisiers cannot lower their commission further because they have to be compensated for the credit risk of their clients in the buy-now-pay-later contra system in Singapore.

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  7. It is a great post. Thanks Hyom.

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  8. and I think the 0.18% com has been over rated in all the forums. Most of it doesn't have any broker services and you probably not aware who is your broker

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  9. I am a dbsvo account holder myself but I don't like to use the cash upfront acct. The main reasons are that
    (1) u need to deposit the money from you bank acct into the cash upfront acct. Its not worth keeping money there consistently as theres no interest. Then say if u deposit thr cash place an order but did not get it. U wan to withdraw it back into yr savings acct, it takes 1 working day.
    (2) u need to log into ibanking to place an order. Its fine if u have a predetermined price to queue at. But if u want to change your price, u will need to log into ibanking again since ibanking logs out after a while. This may cause u 1-2 bids if say if there is a selldown and u wish to queue lower for a margin of safety.
    All these just for a couple of bucks savings is just too much hassle and not worth it, imho.

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  10. Hi.I'm a DBSv acc.holder too.is there any way I can find a better broker?I'm a bit frustrated to pay 0.28% when I don't get any advice from my broker. I think paying 0.28% just to use their online platform to trade is unreasonable.it's not that I'm unwilling to pay the 0.28%.i'm expecting a better service from the broker.i look for the stock, i gain profit from the stock n i share the profit with my broker(that I don't even know what he is doing)Is there a place for me to source for another broker?

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  11. Hi Anonymous at June 7, 2011 12:08:00 PM GMT+08:00,

    The DBS cash-upfront is only 0.18% commission. Standard chartered has announced last week their new brokerage services which is very price-competitive.

    http://help-your-money.blogspot.com/2011/06/standard-chartered-online-shares.html

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  12. Good information.
    I have DBS vicker account and just came to know about the cashupfront while googling for SC offer. I am kind of disappointed that Vicker did not inform the existing customers about the cashupfront promo.
    invtraks.blogspot.com

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  17. Hi,

    i am curious that how do i sell my shares? i have buy share more than 10 days and its not reflected in DBS vickers but is in CDP... so do i sell my shares in CDP or DBS?

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