Questions about Transaction

Hong Kong Stock Market FAQs
1.On SP Trader, when can I place orders for the second trading day of Hong Kong stocks?
In the Hong Kong stock market, conditional orders for the next day can be placed in advance after 16:30 on the trading day.

「U.S. Stock Market FAQs」
1.What is an American Depositary Receipt (ADR)?
ADR, with full name of American Depository Receipts, refers to some companies listed in markets other than the United States (such as Hong Kong-listed companies or mainland-China-listed companies) issue the「Depository Receipt (DR)」with the  help of American big banks for shares, denominated in U.S. dollars, and can receive dividends, in order to attract American investors.

Many blue-chip stocks in Hong Kong have issued ADRs in the United States, such as the Hong Kong Exchanges and Clearing Limited (388), which is only listed in Hong Kong. If American investors want to buy with US dollars in the US market, they can buy the ADR-HKXCY in the market.

ADRs and the stocks they represent have a specific conversion ratio, which is determined by the issuer. For example, the exchange ratio of the Hong Kong Exchanges and Clearing Limited is 1:1, and there are also stocks whose 1 ADRs representing 10 shares and 25 shares. Therefore, when investors buy and sell ADRs, they should pay attention to the conversion ratio and compare the difference between ADRs and their own stock prices.

The exchange rate is also an influencing factor. Since the company's listed stocks and ADRs are denominated in different currencies, when the exchange rate changes, it will also affect the stock price performance.

2.What is the ADR fee?
The Depository Trust Company (DTC) will charge custody fees for ADRs in the form of brokers charging investors on their behalf. ADR fees range average $0.01 to $0.05 per share. The amount and time charged will vary by ADR.

3.Why is there a situation where the selling price of US stocks is lower than the tick-by-tick price but cannot be traded?
A small number of clients may sell at a lower price than the tick-by-tick price in the U.S. stock market but fail to complete the transaction, which may be caused by the trading rules of specialized U.S. dealers and market makers:

(1)The real-time market price of US stocks is delayed, and the transaction is for reference only
Under the trading system of the Hong Kong stock market, most transactions are conducted in the exchange. After each transaction is completed, we can see relevant information on the real-time market system. However, the US market is different. Under the trading system of the US stock market, most transactions are conducted through specialized dealers and market makers. They need to announce to the public within 90 seconds of each deal being made. Therefore, on all real-time market systems, the information we see is delayed.

(2)The concept of a "lot" hidden in US stocks
In the U.S. stock market, stocks are bought and sold in units of 「shares」. However, in order to reduce transaction costs and the risks of holding and short positions, specialized traders and market makers will conduct packaged transactions in units of 100 shares. Therefore, a 「lot」that is not specified in the U.S. stock market is 100 shares. If the number of shares in an investor's order is not a multiple of 100, it may be necessary to wait for a period of time to wait for other investors to place an order at a similar price, and then combine it with the original order to a multiple of 100. Then specialized traders and market makers will take place transactions. This is also the reason why the price is higher than the selling order, or the price is lower than the buying order, and the buying order or selling the order is not executed.

「Some brokerages offer 0 commission services, why do you charge commissions?」
In recent years, many Internet brokerages have flocked to Hong Kong to grab clients, and some brokerages have even touted "no commission for US stocks" and "true zero commission", successfully attracting many retail investors to open accounts. Of course, many people will ask, "Why don't brokerages earn commissions and do volunteer work?" How can there be a free lunch in the world? To understand the profit model of such brokerages, you must first understand a financial term - Payment for order flow (PFOF).

Payments for order flow make retail investors into commodity
The payment for order flow means that market makers pay rebates to zero-commission brokerages in exchange for orders being executed by the market makers in the「dark pool」 instead of being sent directly to the open exchange for transactions. The market makers can earn the difference between the「dark pool」and the open market, which means that retail investors may not be able to trade at the best transaction price during the process, and are miserably 「eaten」 by the market makers.

At the same time, because a large number of orders are traded through the low-transparency「dark pool」, which reduces the circulation of public exchanges, widens the bid-ask spread, and also affects the reasonable price of the stock price. Therefore, the payment for order flow transaction has always been criticized for injustice to retail investors. As for the retail investors who use 0-commission brokerages, on the surface they successfully save on commissions, but in fact they become the “commodities” of the brokerages, and they also become the bargaining chips of the dealers in the market.

Since payment for order flow damages the rights and interests of investors to a certain extent, many countries including the United Kingdom, Canada and Australia, have successively banned the payment for order flow model, and the European Union is also ready to follow the British practice. Gary Gensler, chairman of the American Stock Exchange, also said in October last year that he is studying whether to restrict or prohibit such models to ensure the fair operation of the market.

Order flow trading, which has been operating in the United States for decades, has been successfully refocused mainly because many European and American retail investors are keen to use Internet brokerages after the outbreak of the epidemic. By the beginning of 2021, the market was crazy about Memes stock GameStop (GME), but some brokerages suddenly restricted trading. At that time, the market had speculated that the market maker responsible for receiving the order flow was the driving force behind the suspension of trading.

In fact, as early as the end of 2020, the " Pioneer for commission-free" Robinhood was filed an administrative lawsuit by the U.S. Securities and Exchange Commission, accusing Robinhood of sending its clients' orders to market makers who executed orders at lower prices in exchange for abnormally high " payments for order flow ". The loss of clients was as high as $34.1 million, and Robinhood was eventually fined $65 million and reached a settlement.

Such aggressiveness stems from that the order flow trading dominating the fate of Robinhood. For the full year of 2020, payments for order flow reached $687 million, contributing 75% of the company’s total revenue.

Free is more expensive
In order to improve the protection for retail investors, since 2020, the US Securities and Exchange Commission has required all brokerages to submit 606 reports on a quarterly basis, detailing data such as order flow income, market makers counterparties, market orders, and limit orders proportion, which allows retail investors to finally understand the price behind 「0 commission」. 

In the first three quarters of 2021, the income of the eight major brokerage companies with high order flow in the United States has increased by more than 40% year-on-year.
 

Although the 「zero commission」market strategy has successfully brought more retail investors to the market, it has also attracted more young people to participate in the stock market. However, when retail investors choose a brokerage, they should also pay attention to the reasons behind the commission-free. In fact, they may have sacrificed to trade at the best transaction price without knowing it. The so-called "free" is actually more expensive. (source: BossMind )


Sino-Rich insists on reasonable fees and high-quality services

If the transaction fee is high, it will affect the return on investment and discourage clients; however, the excessively low fee will also reduce the company's resources, making it difficult to maintain a high-quality service level in the long term. Therefore, Sino-Rich Securities insists on transparent fees, and the charging items are listed on the website and statement. With reasonable fees, we strive to achieve a win-win situation for clients and the company to create wealth together.

Questions about Transaction

Hong Kong Stock Market FAQs

1.On SP Trader, when can I place orders for the second trading day of Hong Kong stocks?
In the Hong Kong stock market, conditional orders for the next day can be placed in advance after 16:30 on the trading day.

U.S. Stock Market FAQs

1.What is an American Depositary Receipt (ADR)?
ADR, with full name of American Depository Receipts, refers to some companies listed in markets other than the United States (such as Hong Kong-listed companies or mainland-China-listed companies) issue the「Depository Receipt (DR)」with the  help of American big banks for shares, denominated in U.S. dollars, and can receive dividends, in order to attract American investors.

Many blue-chip stocks in Hong Kong have issued ADRs in the United States, such as the Hong Kong Exchanges and Clearing Limited (388), which is only listed in Hong Kong. If American investors want to buy with US dollars in the US market, they can buy the ADR-HKXCY in the market.

ADRs and the stocks they represent have a specific conversion ratio, which is determined by the issuer. For example, the exchange ratio of the Hong Kong Exchanges and Clearing Limited is 1:1, and there are also stocks whose 1 ADRs representing 10 shares and 25 shares. Therefore, when investors buy and sell ADRs, they should pay attention to the conversion ratio and compare the difference between ADRs and their own stock prices.

The exchange rate is also an influencing factor. Since the company's listed stocks and ADRs are denominated in different currencies, when the exchange rate changes, it will also affect the stock price performance.

2.What is the ADR fee?
The Depository Trust Company (DTC) will charge custody fees for ADRs in the form of brokers charging investors on their behalf. ADR fees range average $0.01 to $0.05 per share. The amount and time charged will vary by ADR.

3.Why is there a situation where the selling price of US stocks is lower than the tick-by-tick price but cannot be traded?
A small number of clients may sell at a lower price than the tick-by-tick price in the U.S. stock market but fail to complete the transaction, which may be caused by the trading rules of specialized U.S. dealers and market makers:

(1)The real-time market price of US stocks is delayed, and the transaction is for reference only
Under the trading system of the Hong Kong stock market, most transactions are conducted in the exchange. After each transaction is completed, we can see relevant information on the real-time market system. However, the US market is different. Under the trading system of the US stock market, most transactions are conducted through specialized dealers and market makers. They need to announce to the public within 90 seconds of each deal being made. Therefore, on all real-time market systems, the information we see is delayed.

(2)The concept of a lot hidden in US stocks
In the U.S. stock market, stocks are bought and sold in units of 「shares」. However, in order to reduce transaction costs and the risks of holding and short positions, specialized traders and market makers will conduct packaged transactions in units of 100 shares. Therefore, a 「lot」that is not specified in the U.S. stock market is 100 shares. If the number of shares in an investor's order is not a multiple of 100, it may be necessary to wait for a period of time to wait for other investors to place an order at a similar price, and then combine it with the original order to a multiple of 100. Then specialized traders and market makers will take place transactions. This is also the reason why the price is higher than the selling order, or the price is lower than the buying order, and the buying order or selling the order is not executed.

Some brokerages offer 0 commission services, why do you charge commissions?

In recent years, many Internet brokerages have flocked to Hong Kong to grab clients, and some brokerages have even touted "no commission for US stocks" and "true zero commission", successfully attracting many retail investors to open accounts. Of course, many people will ask, "Why don't brokerages earn commissions and do volunteer work?" How can there be a free lunch in the world? To understand the profit model of such brokerages, you must first understand a financial term - Payment for order flow (PFOF).

Payments for order flow make retail investors into commodity
The payment for order flow means that market makers pay rebates to zero-commission brokerages in exchange for orders being executed by the market makers in the「dark pool」 instead of being sent directly to the open exchange for transactions. The market makers can earn the difference between the「dark pool」and the open market, which means that retail investors may not be able to trade at the best transaction price during the process, and are miserably 「eaten」 by the market makers.

At the same time, because a large number of orders are traded through the low-transparency「dark pool」, which reduces the circulation of public exchanges, widens the bid-ask spread, and also affects the reasonable price of the stock price. Therefore, the payment for order flow transaction has always been criticized for injustice to retail investors. As for the retail investors who use 0-commission brokerages, on the surface they successfully save on commissions, but in fact they become the “commodities” of the brokerages, and they also become the bargaining chips of the dealers in the market.

Since payment for order flow damages the rights and interests of investors to a certain extent, many countries including the United Kingdom, Canada and Australia, have successively banned the payment for order flow model, and the European Union is also ready to follow the British practice. Gary Gensler, chairman of the American Stock Exchange, also said in October last year that he is studying whether to restrict or prohibit such models to ensure the fair operation of the market.

Order flow trading, which has been operating in the United States for decades, has been successfully refocused mainly because many European and American retail investors are keen to use Internet brokerages after the outbreak of the epidemic. By the beginning of 2021, the market was crazy about Memes stock GameStop (GME), but some brokerages suddenly restricted trading. At that time, the market had speculated that the market maker responsible for receiving the order flow was the driving force behind the suspension of trading.

In fact, as early as the end of 2020, the " Pioneer for commission-free" Robinhood was filed an administrative lawsuit by the U.S. Securities and Exchange Commission, accusing Robinhood of sending its clients' orders to market makers who executed orders at lower prices in exchange for abnormally high " payments for order flow ". The loss of clients was as high as $34.1 million, and Robinhood was eventually fined $65 million and reached a settlement.

Such aggressiveness stems from that the order flow trading dominating the fate of Robinhood. For the full year of 2020, payments for order flow reached $687 million, contributing 75% of the company’s total revenue.

Free is more expensive
In order to improve the protection for retail investors, since 2020, the US Securities and Exchange Commission has required all brokerages to submit 606 reports on a quarterly basis, detailing data such as order flow income, market makers counterparties, market orders, and limit orders proportion, which allows retail investors to finally understand the price behind 「0 commission」. 

In the first three quarters of 2021, the income of the eight major brokerage companies with high order flow in the United States has increased by more than 40% year-on-year.

Although the 「zero commission」market strategy has successfully brought more retail investors to the market, it has also attracted more young people to participate in the stock market. However, when retail investors choose a brokerage, they should also pay attention to the reasons behind the commission-free. In fact, they may have sacrificed to trade at the best transaction price without knowing it. The so-called "free" is actually more expensive. (source: BossMind )

Sino-Rich insists on reasonable fees and high-quality services
If the transaction fee is high, it will affect the return on investment and discourage clients; however, the excessively low fee will also reduce the company's resources, making it difficult to maintain a high-quality service level in the long term. Therefore, Sino-Rich Securities insists on transparent fees, and the charging items are listed on the website and statement. With reasonable fees, we strive to achieve a win-win situation for clients and the company to create wealth together.