THE Stock Exchange of Hong Kong warns investors to deal only with one of its 500-odd members to ensure that they are protected by the exchange's self-regulatory system. 'Investors are warned that trading through unregistered dealers is potentially very dangerous as they cannot be sure that their orders are being executed properly or at all,' said the exchange in its investor guide. If an investor suspects that a person or company is carrying out an unregistered securities operation or falsely representing himself or itself as a broker, the investor is urged to report the matter to the exchange or the Securities and Futures Commission (SFC) to protect other investors. Investors are advised to check the type and size of trading handled by an exchange member as some only handled large accounts, others only cash accounts and some did not offer discretionary or margin account trading. Investors should also ensure that they were dealing with persons authorised by the broker and properly registered. 'It is dangerous to deal with freelance or other unauthorised 'runners' as they are not under the supervision of the exchange or the SFC,' the exchange said, adding that if an investor was in doubt about a person's authority to deal for a broker, he should check with the exchange member himself. After deciding on which broker he wants to deal with, an investor fills out a standard client's agreement that sets out the rights and responsibilities of the broker and the investor. The agreement also confirms the client's understanding of the terms of trading and risk of financial loss in investing and dealing in securities. The agreement also authorises the broker to make credit enquiries and other reference checks about the investor. Mostly, an individual investor trades on a cash basis. And an investor may borrow from a bank or financial institution using the securities to be purchased as collateral. Another form of trading is called margin trading. Many brokers may offer this facility either directly or through an associated firm. A margin trading account is a form of credit granted by a broker to the investor, secured by retention of securities purchased or other collateral. This facility enables the investor to pay for part of the cost of securities purchased on his behalf initially. But full payment is required when the account is closed or the investor withdraws the securities purchased or the collateral retained. As margin credit is limitless, investors should clarify the limit with the broker in advance. An investor may also open a discretionary account for trading in securities allowing the broker discretion to use funds deposited by the investor by providing the broker with a power of attorney or written authority to act for the investor. The investor can also provide guidelines to the broker on what limits the latter can trade and on which shares or type of shares trading should be done. Clients can also give specific orders to the broker at any time. The exchange also advises an investor to clearly state, when placing an order by telephone or in person with a broker or its dealer's representative (usually known as an account executive), whether the order is to buy or to sell, which securities and under what conditions or at what price(s). When an investor buys or sells securities, he will receive a contract note from the broker - which is like an invoice or credit note stating the securities which an investor has bought or sold. It will also include the price, various costs such as brokerage, stamp duty, transaction levy and registration fee. An order may be filled either through the exchange's trading system, by a direct or cross transaction where the order is matched and filled by a broker with an order from one of its other clients, or by the broker itself dealing as a principal. Once the order is filled, an investor will be contacted by the broker to confirm the settlement procedures. The settlement of trades must be completed by the second trading day following a transaction.