So you’ve read enough about how to start investing, have triple checked your emergency fund, and you’re finally ready to get it public! But what now?
The next step is choosing an investment brokerage that you can use to buy your first stocks. Easier said than done. From bank brokers like DBS Vickers and UOB KayHian to independent brokers like Saxo Markets and POEMS, the number of brokers can be overwhelming.
How do you decide which investment brokerage is best for you?
Here are 3 main factors to look out for when choosing the best brokerage company for you:
- Commission fees: how much does it cost to buy or sell your assets?
- Account type: Whether it is a CDP or a custody account
- Trading platform: How user-friendly the brokerage is
1. Investment Brokerage Commission Fees
Investment brokerage companies charge a commission for every transaction on the stock exchange. When you buy stocks, you get charged. If you sell stocks, you will also be charged.
The commission has two parts: the fee itself (a percentage of your transaction) and the minimum fee (a dollar amount). Example:
- You buy Singtel shares valued at $ 3,000
- The broker charges a commission of 0.1 percent with a minimum fee of $ 10
- You end up paying $ 10 instead of $ 3 for your shares
- When you sell your shares, you pay another $ 10
If you’re an investor who only parks a large lump sum for decades, commission fees won’t make much of a difference to you. However, if you invest frequently, expect to be charged commission fees multiple times. Hence, it is important to choose one that charges affordable rates.
You can compare online investment brokers on our MoneySmart page.
Currently, SAXO and POEMS are the two cheapest investment brokers on the market. Both charge just 0.08 percent commission on Singapore stocks with no time-limited minimum fee.
Back to the example of Singtel shares valued at $ 3,000: the commission is only $ 2.40. That’s super cheap compared to bank brokers like DBS Vickers who charge around 0.25 percent per trade for a minimum of up to $ 25.
2. CDP account versus custodian bank account
Are you wondering whether you should choose POEMS or SAXO? Well, one of the main differences is the “Stock Holding Type” or the type of account they use for Singapore stocks.
POEMS has a central depository or CDP account, while SAXO’s is a depository. What is the difference?
- CDP account: Shares are held in your personal CDP account under your name. You have full shareholder rights, such as attending general meetings (general meetings). If the broker goes bankrupt, your ownership of the stocks will remain unaffected.
- Custodian Account: The broker owns the shares in your name, so the shares are technically not in your name. Sounds risky, but MAS is very tightly regulating the financial industry in Singapore and most brokers keep custody accounts segregated so they are not financially affected.
If a CDP account appeals to you more, the well-known brokers usually offer you the following:
ALSO READ: How To Buy US Stocks In Singapore (2020): 3 Best Investment Brokers
3. Investment trading platform
Finally, you’ll want to check out the Investment Brokerage’s online trading platform – either a website and / or mobile apps. These can be used to check stock prices and invest on the go.
Of course, you want to choose an investment broker with an accessible, easy-to-use, and non-flawed online trading platform. If you can’t just invest online, what is it all about? Might be queuing at Phillip Capital too.
So before you contact a particular investment broker, you should test their platform to see if you would like to use it again and again.
If it’s buggy, doesn’t display the correct information, and doesn’t have the tools you need – forget about it, there are other fish in the sea.
If you need it: How to open a CDP account
Once you have chosen an investment broker with whom you can own stocks through CDP, you will need to set up a CDP securities account.
To be eligible to open an account, you must be at least 18 years old and you must NOT go bankrupt. You can either do this directly with The Central Depository (this is a very straightforward process) or create a sub-account with a “depository agent” – a stockbroking firm, trust company, or bank nominee.
In principle, while you can work with as many different brokerage firms as you want, all you need to do is open a CDP securities account to deposit all of the stocks you buy.
Do you want to stay up to date and get the latest news? With the new telegram channel from SGX (ID: SGX Invest) you can now easily do everything in one place. Just click here to find out more!
Bonus: Best investment broker for US stocks
Aside from being able to buy and sell stocks on SGX, all of the investment brokers we talked about offer the same services on the major overseas exchanges.
Commission fees and minimum fees are different for each stock market, and you can use an investment brokerage for SG stocks and an entirely different investment brokerage for US stocks.
Here are the cheapest US stocks brokers:
If you trade on foreign stock markets, the matter of the CDP account and the custody account does not matter. The Central Depository is only intended for trading on SGX and is not an option for foreign stocks. Custodians are therefore the only option.
ALSO READ: Should You Trust Your Broker With Stock Recommendations?
This article was first published in MoneySmart.