The Hong Kong Stock Exchange first instituted the 5/20 trading strategy to promote long term investing/trading. The purpose of the rule is to prevent short term traders from having an undue influence on prices and liquidity in the secondary market.
The 5/20 trading strategy requires brokerage firms to disclose the names of their top five shareholders who own over 20% of shares and those with around 5% ownership. Should they trade within six months after issuance, or if there is any other material change that may affect price stability. Brokerage firms should also report within three days details of every order placed by these shareholders for stocks below $5 billion (HKD).
Traders can use the 5/20 Trading Strategy in several ways, like buying and selling stocks, indices, currencies, and commodities. Traders can also use it to trade in both directions: buying when the price falls below the 20-day moving average and selling when the price rises above the 20-day moving average.
If your broker is operating under the 5/20 rule, and you wish to trade below HKD 5 billion stocks, there are a few things you need to keep in mind. For one thing, brokerage firms can now charge fees based on two sets of criteria: regular trades and those falling under the 5/20 trading strategy.
Therefore, as a responsible investor, it is essential to know about such fees upfront to not come as a surprise. Brokerage firms may also limit option orders placed by these investors for particular low-value securities, either to avoid volatility or for reasons related to liquidity or market impact. Given that low-value stocks tend to have high trading volumes, this measure is put in place to protect the interests of all market participants.
The 5/20 Trading Strategy can be used as a short-term or long-term investment strategy. It is best suited for traders who profit from long-term price movements when used as a long-term investment strategy.
The 5/20 Trading Strategy is a popular investment approach in Hong Kong. Here are some of the main advantages of using this strategy:
The 5/20 Trading Strategy is a versatile investment strategy that traders can use in many different markets and conditions. It is simple to understand and easy to implement, making it a popular choice for traders in Hong Kong. By using the 5/20 trading strategy, traders can enter and exit trades with greater accuracy, increasing their profits. If you are a new investor and want to learn more about forex trading, we recommend contacting a reputable online broker from Saxo Bank.