Trading process

You are required to authenticate your identity when logging on your account, usually via a password, before a transaction can be made. To avoid unauthorised access to and abuse of your account, you should not disclose your username and password to other parties. Keeping these two pieces of information safe is of utmost importance.

Sometimes, you may have difficulty in accessing your account. This may be the result of a number of factors including bottlenecks in online traffic, system outages or the brokerage's system upgrades. Check what alternatives are available for placing orders in these circumstances when signing up for the service. Also ask your brokerage to explain its procedures in resolving access issues.

Before you place an order, you may wish to check the current information on a stock including its bid/ask, nominal and previous closing prices and trading volumes. Most online brokerages or financial websites provide access to delayed stock quotes free of charge. However, these delayed prices you see on your screen may not reflect the real-time prices at which shares are changing hands. Be aware of the difference between real-time and delayed quotes.

It is important for you to know the time when you can place orders. While some brokerages only accept orders during trading hours, others may extend their services beyond trading hours or they may even accept orders round-the-clock.

When placing an order, you have to specify whether it is a buy or sell, the stock code, the order quantity and type of order. The HKEx website has detailed explanations on the order type and trading mechanism supported by its cash and derivatives markets.

• At-auction Order: an order with no specified price, this type of order will enjoy a higher order-matching priority than an at-auction limit order. Any outstanding at-auction orders after the end of the pre-opening session will be cancelled.
• At-auction Limit Order: an order with a specified price, but the execution will be no worse than what you have specified. Any outstanding at-auction limit orders at the end of the pre-opening session will be carried forward to the continuous trading session.

• Limit Order: an order that allows matching only at the specified price or a better price.
• Enhanced Limit Order: similar to a limit order and allows matching of up to five price queues at a time. Any unfilled quantity after matching will be queued as a normal limit order at the input price queue.
• Special Limit Order: similar to an enhanced limit order but any unfilled quantity after matching will be cancelled.

Please note different brokerages provide different order types and sometimes even though order types with the same name can work differently across different brokerages' trading systems, especially when the market is volatile.

You should also check beforehand whether there are limitations on order requests. These limitations may include order size, monetary amount and upfront deposit. When an order is rejected, find out how the brokerage will notify you. One method of notification is an error message delivered to your screen. Find out how your brokerage will notify you of your order status, or confirm your order. Please note order confirmation indicates only the confirmation of receipt of an order while trade confirmation indicates order execution, whether it is an order that is fully matched or partially filled.

When you cancel or amend an online order, it is important to make sure that your original order is not executed. Do not simply assume that your order is cancelled or changed when you hit the button. Orders can only be cancelled or changed if they have not been executed on the market. Meanwhile, when your order is being processed, do not press any key at random as this may disrupt the routing of the orders or introduce errors in the transmission.

Sometimes, due to delays in receiving confirmation of order execution, you may be unsure if your original order has been executed. In these cases, check with your brokerage directly first. Do not simply place another order, as you may easily end up either buying twice as much stock as you would want.

Once an order has been executed, most on-line brokerages will either update the order status on screen and/or email the client to confirm the trade. You are advised to keep either a hard or soft copy of the trade confirmation for reference.

As with traditional brokerages, on-line brokerages are required to issue their clients a contract note for every transaction made. However, unlike traditional brokerages, on-line brokerages may issue contract notes in either physical or electronic form. As required by the SFC, the relevant client must consent to the contract notes being in electronic form and to receiving them in electronic form. The electronic contract notes must also comply with the format required by the SFC. However, digital signatures are not required. You should familiarise yourself with the general format of an electronic contract note and the various items that are required to be listed. If any of these are missing, you should immediately find out why. Print a hard copy of the contract notes of your transactions, thoroughly check them and store them carefully.

Similarly, on-line brokerages have to provide with their clients a receipt for any cash and securities certificates received for settlement or safe custody and a statement of account at least monthly or upon request. You should always check your account statements as soon as you receive them. This allows you to inform your brokerage as soon as practicable about any errors or unauthorized transactions. Study these documents carefully to keep track of your account movements. If there are any discrepancies, contact your brokerage immediately for clarification.

Most on-line brokerages provide on-line account balance checking service. Make use of this service to keep close watch of the current account status and any changes of your account balances.

Before trading overseas securities through your online brokerage, you should clarify if different charges and commissions are levied, whether a separate agreement has to be signed, and what the trading hours, dealing, clearing and settlement procedures are.

Apart from different practices and procedures, investors trading overseas securities may incur additional risks or costs related to the following:

• Overnight pricing risks: time-zone difference may interfere with your ability to receive real-time price quotes as well as your ability to access the markets.
• Different regulatory and accounting standards: overseas markets may adopt different regulatory and disclosure requirements. Their listed companies may also employ different accounting and audit standards in preparing and presenting their financial statements.
• Tax implications: different countries may adopt very different policies on stamp duties, withholding tax, capital gains tax, estate tax, etc. Please be reminded that although you enjoy a low-taxation environment in Hong Kong, you come under a different tax regime when you invest overseas.
• Foreign currency risks: You are exposed to foreign exchange fluctuations when you trade in overseas securities which are denominated in a foreign currency. Besides, these foreign companies you invest in generate their income overseas and hence, also in foreign currencies.