Thursday, 4 September 2008

Fluc Me

Anyone ever noticed that in the local market, when the price of a stock reaches a certain point, it suddenly changes in increments in its fluctuation? No? Now that you know, did you ever wonder how it came about?

I don't know how or why it came about but definitely it's an aspect of trading that needs improvement. This is one reason why many don't give too much importance to the top gainers or top losers list since many of those in the list happen to be third liners that had a transaction or so that went up or down by one fluctuation. Yet, the fluctuation was quite huge in percentage.

To give you an example, let's talk about OM (I'd rather not but this happens to be the best example). At the current level, each fluctuation is .001 centavos. This translates to roughly 10% immediately, either way. So no one should be amazed that the stock gained or lost 10% in one day.

The pricing of stocks in the PSE needs revisions to make it a more efficient market. We already have majority of people stereotyping stock trading to legalized gambling, we don't need to fuel their assumptions with an outdated pricing scheme.

The system in the US is quite efficient. Every stock, no matter the price, has their fluctuations at 1 cent. Even Berkshire Hathaway (NYSE:BRK.A, BRK.B), Warren Buffett's holding company and the most expensive stock in the US market, fluctuates generally by one cent. This allows true market forces to dictate the real market value of the stock.

If we could apply that locally, this could be a way that foreign funds will perceive this as a way for our market to become more professional. It's possible, but PSE must do a feasibility study on this and implement the rules immediately.

While I'm at it, I might as well write to Santa Claus and ask for a Maybach.

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