Buying and selling

Financial intermediaries
Retail investor
Online trading

Before you start trading, make sure you understand the different ways of buying and selling stocks and work out what's best for you.

When Carl started trading, he told Kate to execute his orders immediately. That worked well at first. Then one day Carl realised that his blue chips had been sold at that day's lowest price. When he complained to Kate, she pointed out she had only done what he asked. Carl had no valid claim to make against the brokerage, as it had followed his instructions to the letter. Since the share price had fluctuated a lot on that day, he had also learned a very expensive lesson.

How do I place buy and sell orders?

  • You can phone your brokerage's trading line or visit the brokerage.
  • Some firms also offer on-line trading services, which allow orders to be routed into an exchange's trading system in real time. But if the brokerage's on-line service is an email-based system, you will only be using the email to place orders that are manually fed into the trading system, so the usual processing delays and human error may apply.
  • Whichever method you use, it's important you give accurate instructions. You must clearly give the stock name or stock code, the exact number of shares or the number of board lots you wish to trade, the type of order, and the price level you want.
  • The type of order determines when and how your order will be executed. If you want price protection, you can use a limit order: this means the transaction takes place at a price equal to or better than the price you specify. If you want your order to be executed immediately, you can place a market order: in this case, the transaction will be executed at the best price available at the time your order reaches the market. Remember that this is what Carl did, and his problem was that he could not control the order price.
  • Ask the person you are dealing with to repeat your instructions to make sure there's no misunderstanding.

How long does it take for an order to be executed?

  • Once the details are confirmed, an order to trade Hong Kong listed securities is entered on the Stock Exchange of Hong Kong (SEHK)'s securities trading platform system. A matching order is executed automatically. If there's no immediate match, your order joins a queue and waits its turn. When it is executed depends on the stock's liquidity and the spread between your order price and the prevailing market price.
  • Do not assume your order has been filled simply because the stock traded at the price you specified. Other investors' orders at the same price may be in front of yours - if so, their orders will be matched first. Remember to ask your brokerage to confirm that your trade has been completed.
  • With on-line trading, you need to distinguish between order confirmation (the order is confirmed but has not been executed) and trade confirmation (an order has been fully or partially filled).
  • Do not place another order if you are not sure whether your original order has been executed. Check with your brokerage first. Remember to cancel the original unexecuted order before placing a new one. Otherwise, you may end up either buying twice as many shares as you want or selling shares that you do not own.

How are trades executed during different trading sessions?

  • The pre-opening session adopts an auction mechanism. Orders are accumulated over a certain period and then matched at a single price called the final Indicative Equilibrium Price (IEP). This is the price at which the maximum number of shares can be executed from the matched orders.
  • However, you can place an at-auction order or an at-auction limit order in the pre-opening session. If you want your order to be executed at the final IEP, you can place an at-auction order without specifying the price. But if you expect your order to be filled at a particular price or better, use an at-auction limit order. And remember that at-auction orders get higher priority than at-auction limit orders when matching takes place.
  • When the pre-opening session ends, any unfilled at-auction orders will be cancelled while at-auction limit orders will be carried forward and queued as limit orders in the morning session.
  • During the morning and afternoon sessions, orders are matched in the order they are input based on the best price.

What transaction costs will I pay?

Brokerage commission is freely negotiable between the brokerage and the client. The brokerage may also levy settlement and related fees. You will have to pay other charges like stamp duty, a transaction levy and trading fee, and these are calculated on a percentage of the transaction value.

What are the rules for brokerages' handling of clients' orders?

All brokerages must have an audio system to record client order instructions made by phone. The recordings should be kept for at least six months. Also, the orders should be time-stamped. A brokerage should prohibit its staff members from receiving client order instructions through mobile phones when they are on the trading floor, in the trading room, usual place of business where order is received or usual place where business is conducted. It should have a written policy in place to explain and enforce this prohibition.

However, where orders are accepted by mobile phones outside the locations mentioned above, the staff member should immediately call back to the brokerage's telephone recording system and record the time of receipt and the order details. The use of other formats (e.g. in writing by hand) to record details of clients' order instructions and time of receipt should only be used if the brokerage's telephone recording system cannot be accessed.

Brokerages should handle clients' orders fairly and in the order they are received. They should make sure clients' orders are promptly executed and traded on the best available terms, and that no staff can "front-run" pending transactions for clients. Also, they should not withhold or withdraw a client order for their own or other clients' convenience. Once orders are executed, brokerages need to confirm them promptly with their clients. Records of orders should be kept for at least two years.