Opening an Account An investor wishing to trade securities needs to contact a broker or a sub-broker in order to open a trading account. Each broker or sub-broker has his own criteria for considering opening an account for the clients, with the difference in details. In principle, however, the standard are the same: considering the client's financial status and creditability, by using documents indicating their valuable assets, income, or the position of the client or the guarantor as the criteria for approving the client's credit amount. Moreover, the broker has to study the information about the client, in order to get to know enough about him/ her, i.e. his/ her investment goals, investment knowledge and perception about investing in the securities and levels of risk acceptance, and other personal information, i.e. age, education background, debt burden. All information about the client serves as the broker's crucial base for giving the client the most appropriate advice.
Types of Trading Accounts
The broker will allow the client to open only one type of trading accounts and only one client is allowed for one account. Basically, there are two types of trading accounts:
A Cash Accoun t is an account for the client who wishes to make full cash payment for the securities he/ she has purchased. The broker will determine the maximum cash limit to buy or sell shares appropriate for the client's according to his/her financial status and his/her ability of debt payment. The Clearing and Settlement must be done within 3 days after the purchase of the securities.
A Margin Account (Credit Balance Account) is an account for the client who wishes to trade securities on credit or by selling short. Before short selling, the broker will determine the amount of cash the client needs to put as margin, which is not less than the Initial Margin Rate prescribed by the SET (the value of the shore selling securities X Initial Margin Rate). This amount of money will be put in the client's Credit Balance Account. When the client sends his/her buying orders, the broker will deduct the amount from his/her account. If the value of the securities he/ she wishes to purchase exceeds the amount of cash held at the broker, the broker will lend him/ her the amount pending. In case of selling short, the client needs to borrow from the broker the securities for the Clearing and Settlement. The broker will take the cash that the client has in his/her account and the commission from securities trading as the collateral in the Clearing and Settlement. The client's ability to margin purchase or short sell is called "Purchasing Power". The level of purchasing power will depend on the amount of cash the client has put as margin. The client cannot, however, purchase or sell short in the amount exceeding the limit determined by the broker.
The margin system is complicated as the loan amount can be either increased or decreased all the time, perhaps dramatically according to the situation of the market and the prices movement. If you are considering investing with margin, you should first study its complicated regulations, especially in case the market price has decreased, as the broker might ask you for more collateral. The broker can also force you to sell the stocks in your account. The loss from this type of investment is somewhat severe.
Documentation
To open an account, you'll need a signed copy each of these documents:
Your ID card, or alien ID/ passport if you're a foreigner.
Residence registration form.
Tax ID card.
Bank statement or a passbook savings account having been active for a minimum of six months.
The marketing officer will request your personal details:
Financial status and size of investment.
Investment objective, short-term/ long-term? What form of return do you want?
How much risk are you willing to take? Do you want to take up rights issues?
He'll also talk to you about the nature of securities investment, and the pros and cons of
different types of securities to get some idea of your knowledge and your
investment approach.
Then he'll ask you to complete an application form. When your application is approved, you'll be informed of your account number or your customer code for making buying and selling orders, order change, cancellation, settlement, or any dealing with your broker. Your code should be kept confidential to prevent potential abuses.
At this point, you have got everything you need to know in order to open a trading account. Still, it's advisable to be familiar with your broker. Let's take a look at Who are brokers? to read about its key roles and what makes a good broker.
