Hi guys. After discussing with Cherroy, I have decided to do a noob guide for our stock market section. As I’m just a baby ikan bilis in stocks, I would need you guys to:
1) Help me out with the guide
2) Give me your opinion on whether this guide would be useful or should I just scrap it as there are so many websites/references

My plan is to make it as simple as possible, and cover common issues that are FREQUENTLY asked. Example of the guide:

Post #0 - Index
Post #1 - Simple guide on trading accounts (added)
Post #2 - T+3
Post #3 – Dividends/ex-date/entitlement date
Post #4 - Taxes and stocks/dividend
Post #5 - Can I ask when is the best time to buy stocks or the TP for a stock?
Post #6 - etc.
Post #10 and above – for noob to ask questions (including me!!!!)

Going to start off with T+3 first. Please help or give opinion. No spamming please.

Note : Let me draft out the rough outline on T+3 first then you guys can comment/help/give opinion. Thx!

This post has been edited by kmarc: May 17 2009, 09:49 PM

T+3

Refers to the term “Settlement period”

What does "T" and "+3" mean?

"T" = Transaction @ Trade day/date (the day you bought or sold a stock)

"+3" = 3 working/business days after "T". That’s the day when you have to settle your transaction

--- If you bought shares, you have to make payment on day 3
--- If you sold shares, you must deliver the stocks on day 3

T+3 is only relevant to you if you decide to hold on to the stocks. If you sold your stocks on any day prior to T+3, then it is a contra trade. The rest of the guide will assume that you plan to hold on to the stocks you bought.

Important:
Note that it is 3 working/business days and if there is a holiday in between, it is not counted

In generally, those days when our stock market (KLSE/KLCI) is open are considered "business" days. That means, even if your state is having a holiday, doesn’t mean KLSE/KLCI is not opened!!!

Example



For Trade 1 – Trade on Monday, settle on Thursday
For Trade 2 – Bought on Wednesday, but over the weekend, so settle on Monday
For Trade 3 – Bought on Thursday, but over the weekend and also holiday on Tuesday, so settle on Wednesday

Details on T+3 (the day of settlement)

Is there a specific time on T+3 when you need to settle the trade?

Yes. You need to settle your trade on day 3 (T+3):
1) Before 12:30pm in general (that means, before the morning session ends)
2) Before a pre-determined time if you request a further extension from your remisier
--- For example, your remisier may allow you to extend your settlement day to T+4 at 12 noon.
--- The extension limit depends on your remisier (who ultimately bears the responsibility) and you need to request the extension

How do you settle the trade on T+3?
This depends on whether you have a cash account or a margin account.

> Buy stocks, cash account

- You do the trade within your credit limit. At T+3, you will need to settle your payment.

- If you do not pay up after T+3, your remisier will sell your shares, and charge you if you sustain any loss from the sell.
------- When they sell your stocks, they will sell it at whatever price traders queued to buy.
------- For example, if you bought your share at 90 cents and the highest buyer's price is 80 cents, then you stocks would be sold at 80 cents and you would incur a loss of 10 cents per share.

To avoid such a case, you could top up your trading account with cash prior to any trading. The value of your stocks will be deducted from your trading account (but you have to make sure you have sufficient cash in that account). The brokerage could pay you interest on any balance in your trading account.

> Buy stocks, margin account

- To buy shares using the margin facility, you need to have enough collateral in that account before you are allowed to buy the stocks. Your brokerage firm will charge you interest on your "borrowed" money.

> Sell stocks, either accounts

- Don’t forget that after you've bought some shares, you will have 3 days before you need to pay for it if you intend to hold on to the shares. This also applies if you sold some shares. You will only get the money after 3 days.
- This also means that you can't use the money from shares you sold until T+3 as the buyer hasn't paid you yet!!!

Why are investors sometimes afraid of T+3? What happens to the stock market at T+3?

- In certain cases, traders are afraid T+3 as share prices might drop after a recent rally i.e. there might be a "pull-back" in share prices after a recent upward trend
- This usually happens when the stock market suddenly jumped higher or stock prices suddenly shot up higher
- When stock prices go up suddenly, it usually means that many traders were buying that counter, some using their margin facilities
- On T+3, those traders who used the margin facilities might not want to hold on to the shares and they might dump the shares regardless of whether they made or lose money
- The effect of "dumping" by many traders may cause the share price to drop
- That's the reason why you sometimes see traders warning you on T+3 as share prices might drop
- Note that this doesn't always happen

For example, the counter "IOICORP" suddenly jumped up 50 cents on Monday. On T+3, which is on a Thursday, some traders might be afraid of buying IOICORP because of this "T+3" effect where the stock price might drop as people NEED to sell their shares (which they bought on Monday).


References:
http://www.investopedia.com/terms/s/settlement_period.asp
http://www.sec.gov/investor/pubs/tplus3.htm

This post has been edited by kmarc: May 18 2009, 10:52 PM

I was referring to online trading as I have no experience with offline/remisier trading. I have no knowledge of the normal or securitised trading accounts either. Do you think these accounts should be put into the FAQ?

Will google more about these accounts.....

Will complete the "T+3" before I go to the "Dividends" topic. Would be more than happy if you guys help out or even do some of the subtopic!!! A FAQ/guide contributed by our forumers....

Thx for your input on the settlement day. I need more information regarding the settlement day, what options are available. The FAQ on that would be something like this:

Is there a specific time on T+3 when you need to settle the trade?

You need to settle your trade on T+3:
1) Before 5 pm on T+3
2) Before a pre-determined time if you request a further extension from your remisier
--- For example, your remisier may allow you to extend your settlement day to T+4 at 12 noon.
--- What is the maximum extension limit? T+4 at 5 pm?

This post has been edited by kmarc: May 17 2009, 10:13 AM

Ok, edited. Thx.

Anybody wanna help with this one? I hope I got it right.... tried to get some terms inside but I'm really noob in this.....

Why are investors sometimes afraid of T+3? What happens to the stock market at T+3?
- In certain cases, traders are afraid T+3 as share prices might drop after a recent rally i.e. there might be a "pull-back" in share prices after a recent upward trend
- This usually happens when the stock market suddenly jumped higher or stock prices suddenly shot up higher
- When stock prices goes up suddenly, it usually means that many traders are buying that counter using their margin facilities
- On T+3, since the traders do not have enough money to pay for the shares, they will dump the shares regardless of whether they made or lose money
- The effect of "dumping" by many traders may cause the share price to drop
- That's the reason why you sometimes see traders warning you on T+3 as share prices might drop
- Note that this doesn't always happen

This post has been edited by kmarc: May 17 2009, 05:08 PM

Thx Jordy.

Aikess... this is getting more complicated..... I'm thinking that I should do a subtopic on this margin facility business (i.e. types of trading accounts) as it would involved too much information in this "T+3" subtopic.

Anyway, regarding my cash account, I have asked my remisier before and she said that I can only buy if I have enough cash in that account. Even my online trading account won't allow me to buy stocks more than what I have in that account i.e. If I have RM1,000 in my account, I can only buy that much of stocks. Can anybody clarify this?

I'm confused about "Forced selling" for cash accounts. I really thought you need cash upfront before you can buy any stocks.....

Here's what I changed:



What happens if you do not have enough collateral or cash in a margin account? Won't your remisier sell the shares too?

This post has been edited by kmarc: May 17 2009, 08:35 PM

I guess I need to create a subtopic on different trading accounts. Will try to finish this "T+3" subtopic first.

Was thinking of doing "Dividends/lodgement/ex-date/entitlements" first but maybe I should do "Trading accounts" first.... let's see how it goes...

No no, didn't mean that.

Just that I'm so noob in all these stock trading stuff... need to read more before I can do the rest... just that some answers are so difficult to find or I just can't get the answers from the web.

That's why need the help of all you experts! Any volunteers to do a subtopic is most welcomed!!!

No la. I can't claim anything as I'm not an expert in this field. Need LYN forumers to contribute. Once I finished the guide, will put a notice that this guide was made with contributions from our forumers.

No, the book would be entitled "How to cut big tree with small knife, specially written for baby ikan bilises."

Anyway, I think the "T+3" is more or less complete, with a few questions that need to be addressed. Hope our forumers can help. Will make necessary changes if new information comes along.

Will start on another subtopic when I'm free.

This post has been edited by kmarc: May 17 2009, 11:05 PM

I see. Will find out more about these accounts..... wanna do "dividends" subtopic first then maybe move on to "trading accounts"....

Errr.... was not thinking of such an extensive FAQs section. Was only planning to address the frequently asked questions.... that's why I wanted to put it in a thread with each subtopic in each post (like the example I gave in post #1). That way, it is easy to find too.

Furthermore, there are many "encyclopaedia" websites around on stocks.....

That's what I think anyway.... any opinions on this?

I don't think there are any list for Malaysian blue chips counter.....

I'm trying to get this right. Not really sure about how margin facility works. Look at the subsection on T+3. If I understand what Jordy is saying, it should be something like this:



If I just strike out the above, would the statements be correct?

This post has been edited by kmarc: May 18 2009, 09:20 PM

Thx Jordy. That's really helpful. Will make the necessary changes!

Cool. Will keep the "margin facility" in my notes for the "Trading accounts" subtopic.

This post has been edited by kmarc: May 18 2009, 10:45 PM

Thx for the input but I haven't started that subtopic yet. Hope I will be free this weekend for the "Dividends" subtopic.

Hey guys, I'm closing this thread and will be creating a new one as I forgot to reserve some post for future subtopics. Thx.