How to invest - Part 4 ~ My Finance Marathon

So now that you know the different types of investment products out in the market, how do you start buying? This article would guide you on the steps to open a brokerage account so you can start to invest in the stock market.

Firstly, before you open a brokerage account, you need to choose a brokerage firm that you would like to use for your investment. In Singapore, we have lots of brokerage firms you can choose from. You can look at this article by Seedly which compares the various brokers in Singapore.

While most brokers offer rather similar services and cost almost the same, there are still slight differences which may make you favor one over the other.

Here are some things you should consider before you set up a brokerage account.

1) CDP vs Custodian

When you purchase stocks from the market, the shares can either be stored in your CDP account or your broker's custodian account. When stored in your CDP account, any shares bought would be directly held by you in your 'save'. On the other hand, if you were to decide to store in a custodian account, any shares bought would be held by your brokerage on your behalf.

2) Brokerage fees

When buying, selling, or even holding the stocks, there will be some fees incurred. Such fees include commission fees, clearing fees, trading fees, and platform fees. Do study the various fees different broker charges, especially if you are starting with a small amount of money as such fees can eat into your returns.

3) Accessibility of markets and products

The different brokerage offers you access to different markets. If for example, you want to trade in the US market, you have to look out for brokerage that allows you access to those markets like NYSE and NASDAQ.

Apart from that, the type of products offered by brokerage also differs from each other. Some may offer investment products like ETFs, options, and CFDs, while others may not.

4) User experiences

If you are just starting off investing, you would definitely not want to choose a platform that is overly complicated to understand. I have seen quite a few brokerage trading platforms that do not have a great user interface on their web and app. If you have the chance, some brokers actually allow you to open a demo account for you to try out their trading platform. Do give it a try before opening an account.

Bonus: If you like to look at charts, some brokerages do offer great charting tools for you to utilize.

5) Reputation

This factor is very important. Before you decide on a brokerage, ensure that it is a reputable one. You do not want to be in a situation whereby all your stocks disappear overnight (Especially if you choose to open a brokerage that uses a custodian account).

Some ways you can identify a reputable company would be to see if they are registered with SGX, the history of the company, and also reviews of its users.

Once you have decided on which brokerage you want to use, follow the steps below to open your account(s).

1) Open a CDP Account (Skip this if you have chosen a brokerage with custodian account)

If you are planning to invest in the Singapore market, you need to open a Central Depository Account aka CDP (Unless your chosen brokerage keeps your stocks in custodian account*). CDP is an account where all the stocks and bonds you bought on SGX would be kept. It essentially acts as a safe for your investment.

*If you chose a broker that uses a custodian account instead of CDP, any stocks that you bought would be held by the brokerage firm in their account.

To apply for a CDP account, you must be at least 18 years old and a Singapore bank account namely Citibank, DBS, Maybank, OCBC, SCB, HSBC, and UOB. Once you pass the requirement, you can apply for your account via the SGX website. Follow the instructions given and your account will be ready in no time.

2) Open a brokerage account

Opening a brokerage account is very simple. Just head over to the broker website that you have chosen and apply from there. Do note that some brokerage requires you to send in some documents like bank statements and your NRIC.

Once you get your account approved, you can fund your account and start investing. Good luck investing!

Learned something? This is a 4-part series article so do look at other parts on how to invest to further improve your finance knowledge.

My Finance Marathon