Friday, 26 December 2014

Selection of online brokerage: Margin Financing

This post is an extension of my previous post:

There are many reviews out there on various online trading platforms. If you are taking a long term approach to investment, it will be relatively easy to choose one.

However, if you are going to be trading instead of investing and holding for the long haul, you will probably need some margin financing or a margin trading account. There are many margin financing options for you to choose from whether you are located in Singapore or other parts of the world.

Specifically in Singapore, a quick search of the term "Margin Trading Account" on Google reveals that major banks like DBS, OCBC and UOB provides such facilities for their clients. So what is margin financing? Simply put, it is using the cash or securities/ shares in your trading account as collateral for increasing your purchasing power (i.e. borrowing money from your broker). It is also known as leverage.

Example: Normally if you wish to buy 1,000 shares of "A" priced at $10 per share, you need to have $10,000 in your account to finance the purchase. However with margin financing, if the margin for the purchase of share "A" is 10%, you will only need $1,000 in your account to buy these 1,000 shares.

Sounds great? Only if the trade went your way. Both winnings and losses will be magnified accordingly to the margin rate. This is why you have to be careful when taking on margin for trading, as you can get a margin call if the value in your account falls below your maintenance margin (i.e. the collateral, cash or securities are not sufficient to cover the money you have borrowed from your broker).

If you do your analysis well enough, and you are confident of the direction of where prices will be headed, then margin financing could definitely benefit you. My advise is that you only take on margin trading when you have mastered various indicators and signals that result in price changes, be it fundamental or technical. Personally, my trading account had taken a few hits due to trading on margin as I was somewhat ignorant when I started utilizing margin financing.

So what else do you need to watch out when using margin financing?

1. What is the interest rate for margin financing (sometimes known as overnight premium)? Remember you are borrowing money from your broker, so you have to pay interest. This is also why margin financing is not exactly suitable for buy and hold investor as interest will eat into your gains.

2. What is the leverage ratio or margin rate allowed on various securities? From what I gather, brokers are more willing to provide a higher leverage for shares that are less risky (e.g. like blue-chips stocks).

3. How long is the interest free period? While some brokers charge interest as long as you financed your shares purchase with margin, others allow an interest free period. This is very useful for swing traders! E.g. Maybank has a 7 days interest free period and UOB Kay Hian provides a 10 days interest free period. Normally, I don't hold beyond 10 days anyway, so essentially it is considered "free" margin for me.

I hope this post is useful for you if you are considering applying for a margin trading account. Feel free to leave a comment.


Monday, 15 December 2014

3 tips to get started in investing: selection of online brokerage

I spent a long time researching which brokerage to sign up with before I started my investing journey. I believe with the following 3 tips in mind, it will help you get started in your trading journey.

1. Protection of funds  
Does your broker offer protection or insurance for the money you deposited with them? What is the sum insured from your broker in the case of bankruptcy(50k, 100k and etc.)? Do note that some online brokers could be just executing the order and your shares are ultimately deposited in your CDP  account. For others like SCB online trading account, they will execute your orders and be the custody for your stocks.

2. Fees and Charges
Does your broker requires you to pay a monthly fee for data from exchanges? What is the commission buy and sell transactions? If you subsequently like to transfer your stocks into CDP or another brokerage, are there any fees involved?

3. Features
Will you be using your broker's platform to perform technical analysis or only using it for buying and selling? Most online brokerage have their own charting software which allow you to perform both fundamental and technical analysis. Some offer advanced buy and sell orders like stop loss, while others might be lacking in these features.

I am currently using Standard Chartered online equity trading account for mainly buying and selling of stocks for mid to long term. No margin and contra allowed.

Got other tips in mind? Leave a comment.


Monday, 8 December 2014

Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School by Andrew Hallam

Millionaire Teacher by Andrew Hallam

I have no idea which book to read when I first started.. but I am reading / have read the following book and think it is great. This is why I am recommending Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School to you. Get it from and have it delivered right to your doorstep.

Most people wouldn't expect a schoolteacher to amass a million-dollar investment account. But Andrew Hallam did so, long before the typical retirement age. And now, with Millionaire Teacher, he wants to show you how to follow in his footsteps. With lively humor and the simple clarity you'd expect from a gifted educator, Hallam demonstrates how average people can build wealth in the stock market by shunning the investment products peddled by most financial advisors and avoiding the get-rich-quicker products concocted by an ever widening, self-serving industry.

I remember reading this book a few years back when I began my investment journey. This is not a book about trading forex or swing trading, it is one of the books which reinforced the principles of long term investments and portfolio allocation techniques. You can follow the advise given (e.g. buying low-cost index funds in diversified areas) and build up your wealth over the long run. However, do take note that no one can ever promise you that their funds will not collapse (remember Lehmann Brothers?). Even the most reliable funds manager can undergo various issues (like board disagreement, i.e. PIMCO). So choose your funds wisely and be diversified. With consistent and disciplined investments into your allocated portfolio, I am sure you can be a millionaire when you retire too!

Saturday, 6 December 2014

Difference between Investing and Trading

You may ask, what are the differences between investing and trading?

Personally, I put most of my money into an investment account where I only buy assets which pay good dividend for the long term. I recommend building a diversified portfolio with bonds, ETFs and REITs. You can allocate the percentage of asset class based on the level of risk you are willing to take (e.g. 30% bonds, 60% equities, 10% REITs). With bonds prices expected to drop as interest rates increase within the next few years, you can rebalance your portfolio by buying more bonds. I like this idea (from Andrew Hallam's Millionaire Teacher) as it is essentially a safe and easy (although not exciting) way to build up your wealth. For the active investors, of course you can do stock picking. I like to stock pick myself but it does not always work out well.

I am only using risk capital to trade for the sake of learning as well as to complement my investments. Although trades position are held for relatively shorter period of time, by learning how to follow the trend, it will be easier to identify entry opportunities for longer term investments. Example: I bought into VALE on the strong market share, high dividend (although it might be cut soon because of losses) and record low iron ore prices due to supply glut. It has fallen over by a considerable amount from approximately $15 to $10 within a year. My analysis is that VALE's share price is negatively affected by many external factors like the Brazilian currency and political events. It is nonetheless the biggest producer of iron ore and it is a matter of time before demand picks up again. It is a good investment in my opinion. However, given the developments in recent weeks, the share prices could drop for a further 10-20% as they reported a surprise loss. I won't know and cannot predict that. If only I have waited till the long term trend turns up...

Have a good weekend all.


Wednesday, 3 December 2014

FREE Charting Tool with Technical Indicators!

Free Charting Tool
I have been looking up and down for a good charting software that has the capabilities to draw trend lines and add technical studies. Recenty, I came across one on and I found it very useful and suitable for my needs. Guess what? It is absolutely FREE!

For ads free charting, TradingView offers several PRO versions where you can pay a small monthly subscription fee and it comes with many more features. 

What I like about this charting tool is also the availability of social features such as stocktwits and news headlines sidebar where you can read more about what's hot and what's not. 

You can also use the charting tool I have embedded on my blog for your convenience. Bring up the popup to enjoy a full screen view of the charting tool. 

Try it out and let me know what you think. 


Monday, 1 December 2014

Reminiscences of a Stock Operator by Edwin Lefèvre

Reminiscences of a Stock Operator - Edwin Lefèvre

I have no idea which book to read when I first started.. but I am reading / have read the following book and think it is great. This is why I am recommending Reminiscences of a Stock Operator to you. Get it from and have it delivered right to your doorstep.

First published in 1923, "Reminiscences of a Stock Operator" is the most widely read, highly recommended trading book ever. Generations of readers have found that it has more to teach them about markets and people than years of experience. This is a timeless tale that will enrich your life--and your portfolio.

This book is written over 80 years ago and still remains a classic trading book. It depicts the life of a great stock operator by the name of Jesse Livermore. How Livermore, from a boy in the bucketshop, grew to become a market maker and market manipulator. It is definitely one of my personal favorites

AT's Key Takeaway
Well-written, interesting accounts of trading psychology and art of speculation. There are so many lessons to learn from this book. I am very much a short term trader (normally hold my positions less than a week) but having read this book, I am tempted to hold my positions longer. I share a few of my favorite quotes from the book. 

"It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I've known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very level which should show the greatest profit. And their experience invariably matched mine--that is, they made no real money out of it. Men who can both be right and sit tight are uncommon"

"Much more to the game of speculation than to play for fluctuations for a few points."

"Well this is a bull market,you know!"

Readability: *****

* = boring

** = you can give it a miss
*** = average
**** = excellent read
***** = just buy this book, won't you?

Thursday, 27 November 2014

The New Market Wizards by Jack Schwager

The New Market Wizards - Jack D. Schwager
I have no idea which book to read when I first started.. but I am reading / have read the following book and think it is great. This is why I am recommending The New Market Wizards: Conversations with America's Top Traders to you. Get it from and have it delivered right to your doorstep.

In The New Market Wizards, successful traders relate the financial strategies that have rocketed them to success. Asking questions that readers with an interest or involvement in the financial markets would love to pose to the financial superstars, Jack D. Schwager encourages these financial wizards to share their insights. Entertaining, informative, and invaluable, The New Market Wizards is destined to become another Schwager classic.

I read this book last year, now I am re-reading it again to gain more insights from many of these successful traders. The book is written in a rather interesting way so I just kept flipping the pages wanting to learn more.

AT's Key Takeaway
Mainly on trading psychology and money management. There are also a couple of good quotes and tips to pick up from this book to motivate you to perform better. It is definitely re-readable as you become more experienced as the content makes more sense when you get more involved in trading. However, if you are looking for a "how-to" guide, then this book is not for you.

Readability: ****

* = boring
** = you can give it a miss
*** = average
**** = excellent read
***** = just buy this book, won't you?

About the author

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Financial freedom = Passive Income > Expenses. Always remember that there are two sides to the equation of financial freedom. Beside working on how to improve our passive income through investing, we should never neglect the expenses portion. By striving to improve both side of the equation, we can achieve our financial goals and win in the game of money.

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