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Sunday, October 10, 2010

Being the Middleman Bursa and SGX wins at every roll of the dice

That friendly property agent who sold you your dream house last year is again smiling today after selling a strategic condominium to your brother. Your house was transacted at $250 000, and the condominium at $250 000 too. The agent's so-called industry-accepted fee: a cool 2% of those transactions. Today you sold your house for $400 000, and our friendly agent is here to pocket another 2%.

The more you sell or buy, the more the middleman will profit. If you are inactive, and have not sold nor bought any properties, then our middleman gets zilch.

Now back to trading and making in the stock market and looking at Malaysia. Bursa Malaysia is the middleman. If you buy shares, you have to pay them a Clearing Fee of 0.03% on the total value transacted. Two lots of AirAsia at $2.00 will be $2.00 x 2000 x 0.03% = $1.20. Doesn't seem too much?! It is a numbers game just like how a profit of 5 sen for a kilogram of flour is to the trader.

Take a quick reminder peek at FTSE Bursa Malaysia KL Composite Index for the past 5 years. During the economic crisis, the volume of shares transacted traded increased, due to panic, due to greed, due to interest, due to expectations, due to many more factors that ultimately means Bursa Malaysia profits. The more transactions are made, the more of that $1.20 is being made. The red bars on the bottom are the volume traded. And obviously the more panic or euphoria, the higher the bar goes. Looking slightly back from December of 2006 until January 2008, the market was picking up exponential momentum. Oil prices were sky rocketing.

The stocks that will not close-shop (See my Trading Rules Number 1), are the ones you can rest in peace knowing you can buy them they will never fail you. And middleman stocks like SGX and BURSA, are gems that have keep going upwards, be in the rolling good times, or the terrible downturns. They make, and they MAKE - money!

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