Investing | Article
How To Start Investing In The Stock Market In Singapore
by The Simple Sum | 21 Aug 2024
After months of hard work, you have finally saved enough money to start your investing journey.
You have decided to start investing in the stock market and are ready to buy your first stock.
But wait, where do you go to buy stocks?
Can you just click on one of those online trading platform applications or do you need to go to some physical place called the stock market to make your first stock purchase?
The stock market is pretty well organised to buy and sell stocks, all you have to do is register with a brokerage firm; open two accounts and you are set to begin your investing journey.
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You need to open two important accounts
When you want to start investing in market-traded assets (also known as securities) you need to open two accounts; a brokerage account to buy and sell and a Central Depository (CDP) account to deposit and safe-keep your investments.
1) A brokerage account to trade
A brokerage account is an account you use to buy and sell stocks (and other market-traded investment products such as bonds, REITs and ETFs). Brokerage firms are intermediaries that connect investors to investments.
You can open a brokerage account with either a traditional brokerage firm or an online brokerage platform.
2) The depository accounts for safekeeping your investments
The purpose of a depository account is for safekeeping of your investments. When you invest in market-traded Investments in Singapore, you have two safekeeping options; a centralised CDP account or a custodian/nominee account.
Investors are only allowed to open one CDP account but can choose to have multiple custodian accounts.
There is also a third choice of safekeeping some investments in your CDP account and others in your custodian account(s).
What is a Central Depository (CDP) account?A CDP account is like a central e-wallet that keeps all your investments. If you want to invest in Singapore market-traded securities, whether in bonds, stocks, ETFs or REITs, you need to have a CDP account to store all your investments. When you buy a stock, it is credited into your CDP account. The stock is registered in your name, and you are the shareholder. The CDP accounts are managed by the Singapore Stock Exchange (SGX). Besides being an investment depository, the CDP is also an integrated clearing and settlement facility of Singapore market-traded securities. (The list of securities that the CDP provides clearing, settlement and custodian services for) For all these services, investors are charged a Clearing Fee of 0.0325% of the contract value, an SGX Trading Fee of 0.0075% of the contract value and an SGX Settlement Fee of $0.35. These charges are costs investors have to pay on top of the brokerage fees to the brokerage firm/platform. |
What is a custodian account?Because of the high fee charges for using the CDP account, many brokerage firms and trading platforms offer custodian services as a cheaper safekeeping alternative. If you use a custodian account, when you buy stocks, they are purchased through the brokerage’s custodian account which is managed by the brokerage firm. Your investments are held in custody for you. Technically, you are not the owner of these investments because the investments are not registered in your name. Custodian accounts are also used by investors who want to invest in foreign financial securities. This is because the CDP account does not accept foreign listed Investments. Some investors prefer to use custodian accounts instead of CDP accounts because they want to keep their investments private and anonymous. |
The differences between a CDP and a custodian account
The main difference between a CDP and a custodian account is the registered owner of the investments.
When you use a custodian account, the legal owner of the securities is not you but the brokerage house. The securities are held on your behalf, and you are only the beneficial owner of the shares. The shares are not registered in your name, they are held in a trust account assigned to you. Since your name is not registered as a shareholder of the stock, you cannot vote or attend the company’s AGMs/EGMs.
There are both pros and cons to using either a CDP or custodian account, here are the summarised differences:
CDP vs Custodian Account
| Central Depository (CDP) account | Custodian account | |
| Ownership of investments (registration of name) |
|
|
| Rights and bonus issues | You manage these entitlements directly | The brokerage firm will manage them on your behalf and is likely to charge you a fee for the service |
| Dividends | Pay directly into your designated bank account | Paid into your brokerage account |
| Share transfer | Transferable to family members’ accounts | Transferable to own account only |
| Eligibility for IPO application | Eligible to apply | Not eligible to apply |
| Fees | Higher fee charges | Lower fee charges (but may have other hidden costs) |
Choosing a brokerage firm or platform
In Singapore, the majority of brokerage firms are licensed by Monetary Authority of Singapore (MAS), the financial watchdog of Singapore’s financial industry. It sets and enforces regulations for the orderly functions of financial markets and processes to protect investors.
Things to consider when choosing your brokerage firm
Before opening your first brokerage account, you need to spend time researching to find the best brokerage firm that fits your investment needs.
The few basic things you need to consider are the transaction fees they charge and the type of financial products they can buy and sell on your behalf.
- The fee charges; brokerage and other fees. Although online brokerages appear cheaper, you need to check if there are costly hidden charges
- The type of investment products. If you want to start investing not only in Singapore stocks but want to diversify in bonds, REITs and overseas stocks, check if they have market access.
- What are your safekeeping options; are they CDP-linked or do they only offer custodian service?
- Online or offline – if you are not tech-savvy or may not have the time, you may want to use either a stockbroker or Robo-platform to trade.
- Availability of other services, such as research and daily/weekly stock market reviews and updates can come in handy to keep you informed of market conditions.
However, you shouldn’t over-worry if your first brokerage firm choice doesn’t turn out to be the best or if there are some shortcomings.
You can always open other brokerage accounts because investors are allowed to have multiple brokerage accounts.
Once you have opened the accounts, you can start your investing journey!
