introduction to u.s. stock market

Copyright © Beyond Insights Sdn. Bhd., 2012.

Introduction to US Stock Market

Introduction to

US Stock Market


Copyright © Beyond Insights Sdn. Bhd., 2012. 2

World Stock Market Hours(Converted to Malaysia Time as of 1-Jan-2013)

Bursa Malaysia9:00 am - 12:30 pm2:30 pm - 5:00 pm

Australia (ASX)8 am – 2 pm (7 am – 1 pm

7-Oct-13 – 6-Apr-14)

Hong Kong (SEHK)9:30 am - 12:00 pm1:00 pm – 4:00 pm

Japan (TSEJ)8 am- 10 am

12:30 pm – 2 pm

US (NYSE/CBOE)9:30 pm – 4:00 am

(10:30 pm – 5:00 am4-Nov-13 – 9-Mar-14)

UK (LSE)2 pm – 10:30 pm(3 pm – 11:30 pm

28-Oct-13 – 30-Mar-14)



Basic Investing/Trading Terminology Share related Terminology Demo Trade Buy/Long : Buy to Open, Sell to Close Sell/Short : Sell to Open, Buy to Close Ask, Bid, Spread Stop Loss Gap Order Type – Limit/Market/Stop

Pending Order Lot Commission Margin



Share Terminology A Share constitutes the equity stake of the owners of the company. Imagine a company is authorized to raise $100,000,000 capital from the public.

This is called AUTHORIZED CAPITAL. The company can choose to divide them into 100,000,000 units of shares. So,

each share will have a PAR VALUE of $1 . The company may not issue all of it at once if it does not need it now. So it can

issue, let say 10,000,000 units first. This is called ISSUED CAPITAL. If the company can sell all of the 10,000,000 shares, they would have raised the

$10,000,000 capital. Most of the time existing companies issue shares at a premium to it’s par value e.g. $1.30 instead of $1.00

If the company earned $2,000,000 profit after taxes during its first year, each share would be entitled to 1/10,000,000th of the profit which is equal to $2,000,000 / 10,000,000 units = $0.20 Earnings per Share (EPS).

This earnings may be distributed to shareholder as dividends depending on the company’s discretion.



DEMO Account Demo account is a paper money account for you to

practice like live trading You should trade demo as if this is your live account.

Assume the same capital as in Live account Use the same trade size as in Live account Practice all the key functions you need to make sure you don’t

make mistakes during live trading Monitor the performance of the trade



BUY to OPEN @ $33

SELL to CLOSE @ $40

How to make money on Uptrend?Buy Low & Sell High



How to make money on Uptrend? Buy Low Sell High (KO)

Buy to open at $33 Sell to close at $40 Cost per unit = $33 Buy 100 units = $33 x 100 units = $3,300 Profit = ($40 - $33) x 100 units = $700 ROI (Return on Investment) = $700/$3,300 = 21%



BUY to CLOSE @ $7.50

SELL to OPEN @ $27.50

How to make money on DowntrendSell High & Buy Back Low



How to make money on Downtrend? Sell High Buy Low (RIMM)

How do I sell if I do not own any stocks?? You need to borrow the stock first (via the broker) Sell to open at $27.50 Buy to close at $7.50 Cost per unit = Margin Required by broker for short selling

= ~20% x Stock Price= 20% x $27.50 = $5.50

Sell 100 units = $5.50 x 100 units = $550 Profit = ($27.50 - $7.50) x 100 units = $2,000 per unit ROI (Return on Investment) = $2,000/$550 = 364%

Note: For short selling, if there is dividend declared before you close the position you need to pay dividends to the lender of the stock)



Order Type Limit Order - An order placed to buy or sell a set number

of shares at a specified price or better

Market Order - An order to buy or sell shares immediately at the best available current market price

Stop Order - An order to buy or sell shares when its price surpasses a particular price point. Once the price surpasses the predefined entry/exit point, the stop order becomes a market order.



Example of a BUY order

Buy to OpenBuy Limit @$30

Stop LossSell Stop @$29

Profit TakingSell Limit @$32

$2

$1



Example of a SELL order

Sell to OpenSell Limit @$50

Profit TakingBuy Limit @$48

Stop LossBuy Stop @$51

$2

$1



Gap

Closing Price

$18.22

Opening Price

$17.00



Bid/Ask Bid - An order made by an investor/trader to buy a

share Ask - An order made by an investor/trader to sell a share

Bid Price – The price a buyer is willing to pay Ask Price – The price a seller is willing to sell

Spread – Distance between the bid and ask price



Lot In terms of stocks, lot size is the minimum number of shares you need

purchase in one transaction. For Singapore and Malaysia Stock Exchange, you need to purchase in a

minimum of 1 lot = 1000 units and 100 units respectively. For US Stock Exchange, there is no minimum lot size, you can even buy 1 unit

of stock. For US CFD for indices and stocks, you can even buy 1 unit in Halifax Online.

Some other brokers may have some minimum lot size requirement depending on the share.

For US Options, 1 standard call or put option gives you the right to 100 units of shares.



Commission A service charge assessed by a broker in return for handling the purchase or

sale of a security. Most major, full-service brokerages derive most of their profits from charging

commissions on client transactions or from spreads between the bid/ask price. Commissions vary widely from brokerage to brokerage. E.g.

Stocks & Options: (TDAmeritrade)▪ $5 minimum for stocks, after that $0.015 per share up to a flat fee max of $9.95 for up to 5000

shares. Anything less than 333 shares will cost $5 commission per transaction per side(buy/sell).

▪ $1.25 per option contract per side (buy/sell). This is discounted rate for Beyond Insights students. Original rate is $2.95.

CFD▪ CityIndexAsia : $0.02 per unit of CFD for US share, USD15 minimum, no commission on Index▪ Halifaxonline : $0.06 per unit of CFD for US Share, USD15 minimum, no commission on Index▪ Interactivebrokers: $0.005 per unit of CFD for US Share, USD1 minimum, commission on Index▪ (Details calculation to be covered in CFD workshop)



Margin Borrowed money that is used to buy shares. This practice is referred to “Buying

on margin” Margin requirement = The amount of cash/equity contributed by a customer as

a percentage of the current market value of the securities held in a margin account.

Margin Call = You would receive a margin call from a broker if one or more of the securities you had bought (with borrowed money) decreased in value past a certain point. You would be required either to deposit more money in the account or to sell off some of your shares

Typical margin for shorting a stock or option is 20% of the share price. It may change depend on the stock, the volatility of the market and whether any special announcement is coming up like earnings.

Typical margin to buy/sell CFD for US shares is 10% of the share price (for S&P500 companies).

Typical margin to buy/sell CFD for indices is 1-5% of the index value.



Example of Buying with MarginCOST OF PURCHASENO MARGIN Buy MSFT share @$30 Amount Required = 100 units x $30 = $3,000

With 50% MARGIN (STOCK) Amount Required = 100 units x $30 x 50% = $1,500

With 10% MARGIN (CFD) Amount Required = 100 units x $30 x 10% = $300

ROI if Stock goes up to $32Profit = $32 - $30 = $2

ROI for Stock (No Margin)= $2/$30 x 100% = 6.7%

ROI for Stock (50% Margin) = $2/$15 x 100% = 13.3%

ROI for CFD (10% Margin) = $2/$3 = 67%



CFD Brokers Choices - Main DifferenceCity Index Asia

Minimum SGD600 to open account Offices in Singapore, London, Sydney,

Boston, New Jersey, Warsaw, Shanghai Regulated by MAS (Monetary Authority

of Singapore) Segregated and Trust account Demo expiry in 1month unless you have

a funded live account Web-based, Desktop & mobile platform

available A good choice if you trade Singapore

shares or safety of funds in Trustee setup is your top priority

www.cityindex.com.sg

Halifax Online No minimum to open account (Minimum USD 5000 to open account was waived for Beyond Insights students) Public company in Australia Non Segregated Account but separated from Company

Funds Demo expiry in 1 month (extended to no expiry for

Beyond Insights students) High Liquidity & Better execution speed Desktop, web-based and mobile browser platform

available Correlation chart available A good choice if you also

Day Trade Trade Shares in Australia, HK, Europe, etc Trade other instruments e.g. Shares, Futures, Future

Options www.halifaxonline.com.au

http://www.cityindex.com.sg/

http://www.halifaxonline.com.au/



CFD Brokers Choices - Main DifferenceInteractive Brokers

Minimum USD 10,000 to open account Largest online broker with most

complete global offerings of Stocks, ETF, Options, CFD, Forex, Futures.

Web-based, Desktop (Windows & Mac) and mobile platform available

More complex platform as it’s designed for high volume and active traders.

Charges USD10 per month if commission is less than USD30 per month

A good choice if you are active trader www.interactivebrokers.com Application instructions available in

facebook under File menu.

http://www.interactivebrokers.com/



Required Documents by Broker Proof ID:

Photocopy of I/C and Passport Proof of address:

In the form of a recent bank statement, utility bill or telephone bill. mobile phone bill is not acceptable as proof of address

For City Index (FX and CFD) applications: A printed copy of our applicable Risk Disclosure Statement signed by you

and a witness (refer to link below) For TDAmeritrade (Stocks & Options)

A printed copy of the W8-Ben form. The hardcopy need to be sent to TDAmeritrade.

Scan all the above documents and send to the respective email as in the application reference documents.



Halifax Live Account Opening Live Account Opening Link: http://www.halifax.com.au/csa?id=397 Guide on how to fill up the form:

http://www.beyondinsights.net/cfd/tutorial/halifax-application-form.pdf

Please send an email to [email protected] and copy [email protected] after your submit the online application, stating that you are a Beyond Insights client. That will speed up the application as Kamil is in charge of our students account opening and can setup the default discounted commission rate.

Scan the following documents and send the softcopy to Kamil:1) Malaysia National Identity Card2) Your Passport3) Utility Bill (e.g. Electricity or water) OR Bank Statement - with your Name and Addres

You do not need to send anything by post if you can email them the softcopy. In case you get an email asking you to certify your documents - You do not need to get

the documents certified - this requirement has been waived for Beyond Insights students.

http://www.halifax.com.au/csa?id=397



http://www.beyondinsights.net/cfd/tutorial/halifax-application-form.pdf



Useful Links Investment Jargons definition

www.investopedia.com US Stock market news

www.cnbc.com www.marketwatch.com www.bloomberg.com

Free Stock Charts www.tradingview.com/e

What are the big investment guru holding? www.gurufocus.com/

Analyst Research/Commentary on Stocks seekingalpha.com www.fool.com www.wikiinvest.com

Economic Indicators timing & results www.forexfactory.com

Stock Screening (will be given during workshop)

▪ Main Screener

finance.yahoo.com▪ Analyst Targets

▪ Financial Statements (Cash Flow, Balance Sheet, Profit & Loss Statement), etc

finance.google.com▪ Latest earnings time, etc ▪ Competitive study▪ Correlation study

money.msn.com▪ Stockscouter Rating▪ multiyear/quarter & Industry comparison, etc

form4oracle.com ▪ Insider Trading

www.morningstar.com/earnings ▪ Earnings Transcript

www.earnings.com▪ Earnings Webcast

http://www.investopedia.com/

http://www.cnbc.com/

http://www.marketwatch.com/

http://www.bloomberg.com/

http://www.tradingview.com/e

http://www.gurufocus.com/

http://seekingalpha.com/

http://www.fool.com/

http://www.wikiinvest.com/

http://www.forexfactory.com/

http://www.finance.yahoo.com/

http://www.finance.yahoo.com/

http://www.finance.google.com/

http://www.money.msn.com/

http://form4oracle.com/

http://www.morningstar.com/earnings

http://www.earnings.com/

introduction to u.s. stock market

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