How Do I Start Investing In The Stock Market? (PART 1)

Despite the advances in technology and flow of information, this kind of (basic) question sometimes get thrown to anyone involved in the finance industry. More surprisingly though is the fact that sometimes this question comes from a person working in the finance industry. It is not a surprise because our educational system is lacking in this particular area – from grade school, to high school, and even college, except for finance courses, there is no mention of the financial system that one should learn about especially the stock market.

For some, they might have an idea of what company to buy but as to how - is another question. This series of articles aim to provide the answer and hopefully will help those in the quandary as to how to start engaging with the stock market.

First one should understand that to be able to deal with the stock market, a stock broker is a must. Because all transactions directed into the stock market has to pass a stock broker. A stock broker is a company authorized to transact with the stock exchange either for their own account or the client’s account. Stock broker companies are deemed to be ‘members’ of the stock exchange. Therefore, to be able to deal with the stock market, a broker is needed. So, the initial step is to open an account with a stock broker and there are two options.

First option is to open an account with a full service broker. Full service brokers are those traditional brokers whom an investor can talk to, discuss with and get information with regard to just about anything about issues or companies listed in the stock market. They are usually contacted thru phones or could be met in person. They are like personal brokers who will handle your trading account. Second option is the popular online trading account. This is essentially opting out a ‘real’ person to handle your transactions. This is getting so popular because of easy access unlike of a full service broker who may not be available every time a client would need one. More so, for many, the internet service is cheaper to access that a phone service.

Anyway, either full service broker or online account, the process is quite the same. Opening an account requires would-be client to fill out a Client Account Information Form (CAIF). This is a one-time client information sheet which discloses pertinent details about the person opening an account. In this form, the most important item being asked is the Tax Identification Number (TIN) among others. Typically, this is usual problem encountered as some persons have not acquired their TIN like a college student, a house maker, etc. All one has to do is to go to the BIR and apply for a TIN for the purpose of opening a stock trading account. Together with this form is the submission of photocopy of at least one (1) valid ID. A valid ID is one that is issued by the government or any of its agencies. These are SSS/GSIS ID, driver’s license, passport, postal ID, voter’s ID, etc.

Apart from the CAIF, the applicant has to sign a Foreign Account Tax Compliance Act (FATCA) and a Securities Trading Agreement (STA). These are required documents that has to accompany the CAIF.

Next requirement is to provide proof of residence. This is to ascertain further that the person opening an account is a real person. Proof of residence or address requires submission of any current statement from bank, insurance companies, utilities, billings, etc. indicating the name of the applicant in the statement. This requirement is typical to an application for an online account since the applicant cannot be seen by the broker.

Lastly, is to fund the account with a minimum amount required by the stock broker company. For online account, the minimum is from Php 5,000.00 to Php 25,000.00 depending on which company one is applying with. For the full service brokers, the minimum is usually higher. However, outright funding with full service brokers is not a necessity unlike when one opens an online account. The full service brokers will collect the corresponding amount of the trade or transaction only after the trade is executed. Unlike with online, prior to any trade, an amount must be in place beforehand. One cannot go beyond the placed amount vis-à-vis the value of the transaction plus fees. In short, an online account is like a pre-paid scheme and a full service account is a post-paid scheme.

So after fulfilling all these requirements of setting up an account, one is ready to trade (buy and sell) stocks, either on their own, in the case of online; or with a help of a personal broker, in the case of a full service account. Either way, the new dilemma is what stock will you buy? We will reserve the answer to this question on our next article. Have a great day!