Part 1: Understanding Contra Account

What is Contra Account?

It is an account that gives you additional purchasing power to buy shares and it works (quite) similar to a charge card.

A charge card increases your spending power for your splurge on things that don’t matter branded bags and shoes while a Contra Account gives you the similar pleasures… but for buying shares.

 

Three terms you need to understand first;

Trading Limit – Also known as your purchasing power. Trading limit basically tells you how much you can afford to buy.

Collateral – Similar to how a bank loan works (you give something in exchange for a loan).  At RT, you’ll be giving (in other words, pledging) your shares and/or cash as collateral for an additional trading limit.

Multiplier – Varies from counter to counter, this indicates how much more you can trade based on the collateral you’ve placed.

 

Takeaway. A contra account gives you higher trading limit so that you can buy more (shares) than what you have in your account (collateral). The higher the limit, the more shares you can buy.

 

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How Can You Get A Higher Trading Limit?

Only via a Contra Account, your trading limit will increase based on the collateral you’ve pledged and multiplier assigned to each share.

Depending on the multiplier assigned to each share, your trading limit will increase either by 1X, 3X, 5X or none at all based on your collateral value.

For example:

Top Glove has been assigned a multiplier of 5X.

Collateral Value: RM1,000

With a RM1,000 in your Contra account, you get to buy up to RM5,000 (5X) in value of Top Glove shares.

The ADDITIONAL RM4,000 is the EXTRA trading limit which you got for buying a 5X multiplier share.  In other words, you trade more with what you have.

 
Collaterals

Collaterals are essential if you want to get a higher trading limit. In order to get a higher limit, you’ll need to put something up in case you…well… runaway?

Collaterals accepted are in the form of cash and / or paid shares.

Protip: These items must currently sit in your Rakuten Trade Contra Account and not in another trading account or broker.

 

Cash is (duh!) your available funds, in Ringgit Malaysia, while paid shares are stocks you currently own. Putting up your cash up as collateral will give you its 100% collateral value. (Example: RM10,000 cash = RM10,000 collateral)

Putting up your paid shares however depends on its individual markets. (Example of markets: Main Market, ACE Market and Warrants)

 

Shares from the Main Market (MM) will give you 80% of the collateral value, while shares from the Ace Market (AM) and Warrants will give you 50% and 0% respectively

 

Multiplier

In general, a multiplier indicates how much your extended trading limit will be based on the collateral you’ve earmarked.  It is assigned and varies to each share tradeable on RT. For example, Top Glove has a multiplier of 5X while XOX Bhd has a multiplier of 3X. Here's the multiplier share lists separated into Main Market and ACE Market.

 
 
 

 

Here's how you could determine the multiplier assigned to each share (highlighted in red box).

 

Part 2: Contra Trading Simulation

 

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