Wondering how to buy stocks in Singapore and create passive income? From television dramas and movies, I have gotten used to the images of shouting at a broker when you want to buy or sell stocks. The image usually involves shouts of elation or cries of despair.
😆😆😆BUY!! BUY!!! BUY!!!😆😆😆
😢😭😢 SELL!!! SELL!!! SELL!!! 😭😢😭
This scene from the movie “Overheard” sticks with many as the image of the stock market. There you have it, the secrets of profiting from the stock market. Gather a crowd of people, go to the stock broker’s office and shout at a screen.
That is definitely not the way to profit from the stock market. Buying stocks in Singapore involves a whole lot of other processes that is not shown in the movie. One does not simply walk in and join the crowd in shouting.
Here is a beginners guide on things you need to know on how to buy stocks in Singapore and beyond. Things that are not shown in the movies.
How to Buy Stocks In Singapore No. 1 – Choosing a Stock Broker
The stock market is a place where buyers and sellers aggregate together to trade. They trade ownership of companies. Brokers will match the buy request of buyers and sell request of sellers together. Therefore, in the modern market, all investors will have to buy and sell shares through a broker.
The first step to trading in the stock market is to open a stock brokerage account. In Singapore, there are many brokerage houses for us to choose from. Once you open a brokerage account, a broker will be assigned to service you.
If you would like to trade Singapore stocks, your broker would have to apply a CDP account for you. CDP account stands for Central Depository account, it is the place where your stocks are kept.
In order to place a trade, you can call your broker who will place your trade on behalf of you. Calling in to place a trade usually cost more as there are more cost involved. In our technology filled world, internet trading platforms are the norm. There are several advantages to trade using the internet, it is faster, cheaper and eliminates the risk of human error (except your own error).
Here is a list of brokerage houses in Singapore.
Most of the brokerage houses provides similar level of services. Personally, the main difference between brokerage houses for me are,
The number of stock exchange they have access to
Certain brokerage houses have access to a few stock markets, thus, giving you access to companies that are listed in those exchanges. Some brokerage houses, however, have access to stock exchange around the world. An example is Saxo Capital Markets, where they have access to even the Mumbai Stock Exchange and Johannesburg Stock Exchange. This gives investors much more options to invest in different markets. Having the ability to buy stocks at their primary market gives investors much more advantage in terms of liquidity and forex exchange.
If they provide nominee accounts or not or depository accounts.
The second thing that I would be of concerned is if my trading account is a nominee account or depository account. In order to invest in Singapore stocks, investors have to have a CDP account. CDP is the subsidiary of Singapore Stock Exchange where your stocks will be kept on your behalf. Gone are the days where investors will receive physical stock certificates at the end of the trading day. Therefore, once you purchase a stock, the stock will be held under your name in CDP.
However, if you purchase stocks using a nominee account, your shares will be held in custody for you by the custodian bank. Therefore, you do not technically own the shares that you buy, although you will still receive your dividends and be able to buy and sell your shares freely. With your shares held under custody, there will also be a custody charge imposed by the custody bank.
Therefore, I will always choose a brokerage that deposits my shares into CDP, even if it means I have to pay higher commission.
When selecting a brokerage house, commission should not be the only factor, as a cheaper commission often comes with different criteria.
How to Buy Stocks In Singapore No.2 – CPF-IS
For Singaporean and Permanent Residents, there is another way to invest in stocks. And that is to unlock your CPF’s monies to invest. Under CPF Investment Scheme, Singaporean and PRs will be able to utilise their CPF monies to invest in certain stocks and investment products as long as you fulfill the following criteria:
- You are at least 18 years old.
- You are not an undischarged bankrupt.
- You have at least $20,000 in your Ordinary Account and/or
- You have at least $40,000 in your Special Account.
However, the catch is that any profits will have to go back to your CPF accounts. Do utilise your CPF monies with caution as CPF monies are supposed to be for retirement. Any profits will help you to hit your minimum sum faster, however, any losses will have the opposite effect.
Statistics from CPF have shown that only 15% of investors made returns of more than the 2.5% interest provided by Ordinary Account. Which means that investors would have done better by leaving their monies in their Ordinary Account.
Currently, investors can only invest their CPF monies through CPFIS agent banks, namely, DBS, UOB and OCBC.
As mentioned above, only 15% of investors made better monies than provided by CPF, hence, only invest if you know what you are doing.