Market Mechanics

Question 1

What is a Stock Exchange?

Answer 1

• A central location for corporations and government to buy and sell equities

Question 2

What is the Philippine Stock Exchange?

Answer 2

• The oldest and only stock exchange in the Philippines

Question 3

What is the PSEi?

Answer 3

• PSE Index is the list of the top 30 companies in the stock market. These are the so-called blue-chip companies.

Question 4

Explain the mechanics of how a company enters the stock market.

Answer 4

1. Company undergoes Initial Public Offering (IPO)
2. Company shares are made available by the PSE to the public.
3. Broker platforms make the shares purchasable to the public
4. Investing/Trading public can now buy and sell the shares of the company.

Question 5

What is the good starting point for investing in the stock market?

Answer 5

• 25k-100k

* Best is 30k, 3 stocks, 10k each to diversify

Question 6

What is the stock market schedule?

Answer 6

9am-9:30am > Pre-open

9: 30am-12:45pm > Market Trading Hours
12: 45pm-1pm > Closing hours

Question 7

What is a board lot or lot size?

Answer 7

The minimum number of shares you can buy from a company.

Question 8

What is liquidity?

Answer 8

The ability of an asset to be converted into cash without affecting its market value.

Question 9

What is the most liquid asset?

Answer 9

• Cash, since it can be converted into goods right away.
• Say you want to buy a new gadget. Your asset is a shelf of books. You may not be able to trade a shelf of books for a gadget but with cash, it is possible to trade it for the gadget right away.

Question 10

How is liquidity related to the stock market?

Answer 10

• It relates to the bid and ask price of a share.
• If the bid and ask price of a share is more liquid, there’s a higher chance of unrealized gains.
• To tell if the bid and ask price is liquid, you can observe it by looking at the selling price if it dominates the bid price. If the exchange is dominated by selling price, the bid & ask spread grows (illiquid), but if the bid and ask spread is close together, then the bid & ask price is more liquid.

Question 11

How do you read a bid and ask board?

13 455k 1.90 | 1.91 200k 2

Answer 11

Bid Read: There are 13 people willing to buy 455k worth of shares for 1.90php per share.

Ask Read: There are 2 people selling 200k worth of shares for 1.91php per share.

Question 12

What is the bid and ask board used for

Answer 12

• This usually applies to accounts of 5 million and above.

- It can be used to confirm support and resistance zones

Question 13

How do you place a buy order on a stock that moves fast?

Answer 13

13 455k 9.40 | 9.41 200k 2

Ask price is 9.41 but the price moves fast and suddenly it became 9.60. What you can do is place a bid higher than the ask price, say 10php, but the broker will still only get the current share value (e.g. 9.60)