Introduction to stockbroking

Stockbroking
what you need to know
Mark Weetman
Vunani Private Clients

The 6 W’s of Stockbroking
“Kipling Method”
"I keep six honest serving-men
(They taught me all I knew);
Their names are What and Why and When
And How and Where and Who."
Rudyard Kipling (1902)

Why
The rewards of trading!
How to make money on the stock market!

What are you trying to achieve?
“The stock market is, without doubt, one of the greatest tools ever
invented for building wealth”
“What was once the domain of the rich” or the investment
professional “has now turned into the vehicle of choice for
everyone to grown their personal wealth.”
“.. So that nearly anybody can own stocks.”

What king of Investor are you?
Investment Style
•Active vs Passive Investment
Time frame
•How much time do you want to spend on investing
•How active do you want to be/how involved can you be?
•When do you need your invested monies?
Risk tolerance
•Are you comfortable with short-term decreases in
investment value
Reasons for becoming a trader
•Results-orientated trader vs ego-driven trader

Who
Which broker is right for you?

Is he really my Buddy!
“Stockbrokers more competitive, Willing
to take more risks than psychopaths"
University of St. Gallen, Switzerland
• professional stock traders actually outperform diagnosed psychopaths when it comes to competitive and
risk-taking behaviour.
• traders showed a higher degree of competitiveness than the psychopaths
• willing to cause harm to their competitors if they thought it would bring them an advantage
• In 2005, a study found that traders who are unable to fully feel their emotions due to brain damage end up
performing better on the market -- possibly because they experience less anxiety about risky trades.
• Another research project that concluded in 1996 found that some percentage of both stockbrokers and
politicians display many traits characteristic of psychopathic personality, including a willingness to take
risks and an interest in wielding power
• In 2001, a study found that many young Wall Street stockbrokers got little sleep, often reported for work
even when suffering from the flu or a virus, and were much more likely to experience symptoms of
depression than average Americans.
• In fact, the study found a 23% rate of major depression within the group of young male stockbrokers

All brokers are not made equal!
Historically, there are two different types of brokers:
Traditional (also known as "full service")
•work one-on-one with a personal stock broker
•offer investment ideas/ideas
•Analyse your portfolio,
•Typically a significantly higher commission
Discount brokers (On-line brokers)
•geared toward the do-it-yourself investor
•generally, they will not offer investment advice
•simply execute orders once you've decided to buy or sell
•Instead of working with the same stock broker, you will do most of your trading online, or if you
decide to call in your order, with the first available broker.
•investors will be charged a significantly lower commission.
However we have seen convergence of the two models

My broker my buddy!
 Research
 Cost
 Training & education
 Technical Analysis/Fundamental analysis
 Trading front-ends
 Instruments
 Access to traders

My broker my buddy!
 Research:
 Cost
 Brokerage is typically between R75 to R100 min or 0.20% to 0.5% (NB. Some others are and)
 Monthly fee circa R50 (equities)
 Portfolio transfer typically R60/counter
 Advisory fee
 JSE data cost
 Platform costs (typically waived based on volume/value traded)
 JSE turn (interest hair-cut)
 Long rate (funding) around SAFEY + 2% (6.76%)
 Short rate (earn) around SAFEY - 2.25% (2.51% includes scrip borrow)
 Bid/Offer spread
 Instruments

Sharks Rugby Player ready to “tackle”
the stock market
VPC trading desk teaching Sharks' Lionel Cronje

Join me for a beer at the
Bull & Bear training pub

What
What trading instruments are available,
and how do the work?

What do you want to invest in?
“More and more investors are waking up to the fact that investing is not just about shares, or about
investing in companies listed on the JSE.
So when choosing a broking account, make sure your provider can offer what you want to buy.”

When
Which trading time frame is right for you?

Ultra short-term is the new “black”
• Avg holding periods continue to fall. UK < 7.5 months, US < 7 months & Shanghai < 6
months (2007)
• HFT now more than 70% of all US Equity volumes, Europe 30 – 40%, and Shanghai 80 –
90% done by day-traders (including small retail clients)

Know your trading sessions
• Determine what part of the year you are trading in. During our winter the FTSE opens the same time as our spot 9:00am). During Summer its
an hour later (10am). The NYSE opens at 3:30pm in Winter and 4:30pm in Summer.
• Pre Spot Opening Bell 8:30 to 9:00 – Tugging for position, during this time the market will over sell or over buy, take note that the Top40 has
to catch up when it opens at 9. Trade in the centre of the range and you’ll be safe or range trade it.
• 1st Spot Session 9:00 to 11:00 – Aggressive volatility, perfect to trade trend directional. Go with the trend.
• 2nd Spot Session 11:00 to 14:00 – Range bound, never trade breakout during this period, (except at exactly the hour.) Most profitable
trades are within the range. Use support and resistance lines.
• 3rd Spot session 14:00 to 15:30 – Event driven, this session is packed with economic news and can be volatile. Trade the news can be
profitable if you on the right side. Risky
• 4th Spot session 15:30 – 17:00 - The NYSE opening session and sometimes called the morning reversal. This is when traders take profit and
reverse over extension. The hook period. Major moves, go with the trend but know that you’ll need to trade contrarian within the hour.
• After close session 17:00 to 17:30 – Portfolio rebalancing, position closing session, illogical trends and positioning for the next day. Lots of
action at times and illiquid at others. This is a difficult session to trade but easier to scalp than a trending market.

Where
The local & international trading
platforms at your fingertips today

You have been told!
Streetdogs, Businessday 10th October 2012
“… They have all the tools at their finger-tips, all the connectivity, all the charting packages … they know
more about what’s going on than most stockbrokers one talks to.
… through the internet, through social media are finding out about events as quickly as any fund manager.”
Brett Duncan - Head: Retail equities, Standard Bank.
“… What does it mean? It means that the retail investor today has access to incredible amounts of
information, sophisticated technology platforms and news engines … but it also means that you at the end
of the day have to be able to make that investment decision, and that can be a difficult space to be in … “
Brett McLaren – Co-CEO, Saxo Capital Markets.

My broker my buddy!
 What do other clients think
 Research:
 Cost
 My Dashboard
 Iress Investor
 Iress Trader
 Velocity
 Saxobank
 Instruments

How
Exactly how to go about opening your first trading account

Know your trading sessions
Mandate:
•JSE Equity Member/EDM/YieldX/FSP/Off-shore regulated entity (eg. FSA)
•Equity mandate/SAFEX mandate/FAIS mandate (FSP)
FICA (In-terms of FAIS and internal compliance requirements)
•Proof of bank account (certified bank statement no older than three months)
•Proof of tax number (SARS document with your name and tax number)
•Proof or address (a utility bill with your name on it)
•Certified copy of your ID (passport with signature for offshore)
Original vs Fax/email
•Fax/email acceptable but we'll need the originals within 21 working days.
Make a deposit
•Once the account’s set up you’ll receive a unique account number (BDA/SAFEX/Internal ref.) and can
deposit the funds.
•Once the funds have cleared you’re ready to trade!
•NB – R25, 000 cash max. (FIC), JSE rules R5,000

Trading Desk
Vunani Private Clients
tradingdesk@vunaniprivateclients.co.za
011 384 2920/1/2/3

Introduction to stockbroking

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