One of the most frequent 'get rick quick' thought that comes to mind for a person new to stock is to buy extremely cheap stocks (more commonly known as ultra penny stocks) and sell it for a 0.5cent gain.

For example, buying 200,000 shares that cost 0.5cents each for a total of $1000, and immediately selling for 1cent. Netting you a profit of 100%, or $1000. Sounds like the best thing since sliced bread!

But no, it doesn't work that way. In the stock market, there are some terms you have to be familiar with first. Terms such as bid price, ask price, queuing, market float.

Bid price is the highest price people are willing to pay for a stock. The term comes from the concept that you are 'bidding' for a stock. Ask price is the lowest price people are willing to sell the stock for. In the same line of thought, it is the price someone is 'asking' for a stock.

*** This is a rather advanced topic. It is not recommended for people who are new to investments or trading

When a stock closes the previous day at $1, ever wondered who decides that the stock should open at $1 today? Or even 99cents for that matter. In 2 words, supply and demand.

The singapore stock market is open from 9am to 5pm, with no trading during lunch hours at 12.30pm to 2pm.

However, the computer system at SGX actually start to take orders at 8.30am onwards. When that happens, the computers of the individual brokerage firms will send in all the orders they collected the night before, as well as any fresh orders that come in from 8.30am to 8.59am. At 8.59am, the pre-opening matching routine is performed. And based on those orders, the opening price is determined.

Simple? Nah, actually not really.

Assuming that it looks like the following at 8.59am :

IPO, or Initial Public Offering, is when a company first decides to go public, and thus selling their shares to the general public. This is a contrast to a private company, where the share equity is held by a few people and that these people generally cannot sell out their shares freely.

In most IPOs, there are 2 pools (or better known as tranches) of shares, the public tranche and the private tranche.. In the private tranche, these shares are placed with institutional buyers.. Such as banks, or private equity firms, or basically, big investors. The public tranche are the ones we commonly know as public offering. This public tranche is the one where people ballot for it using internet banking, or ATM, etc..

When you open an account with the brokerage firm, they would usually give you a choice of opening a cash account or a margin account. A margin account is simply an account where the company will finance a portion of the stock you purchase, depending on which stock it is.

The advantage of this to the client is that they are allowed to buy more stock. For example, if the particular stock purchased has a 70% margin financing, which means the company will finance up to 70% of the cost, then it would mean you would be able to buy almost 3 times as much stock as compared to when you didn't.

Contra trading as it is popularly known, is the act of buying and selling something without actually paying for it. Contra trading is apparently unique only to the Singapore and Malaysian stock markets. (Drop me a note if you know of other countries with contra trading)

In Singapore, when you buy a stock, there is no requirement to put up a form of deposit with the brokerage firm. In fact, from the date of the transaction, you are given a grace period of 3 days, known as the contra period, in order to transfer the money to the brokerage firm. It is because of this contra period, that a loophole is formed. It was found that if you sold the stock that you bought before the contra period is up, the brokerage firm would offset the trades, and the net effect was that you will be paid any profits or losses you obtained from that 2 trades.