STOCK MARKET BASICS

Basic Stock Market Terminologies

STOCKS - shares of ownership in a company. When you buy stocks of a publicly listed company,
you become a stockholder or shareholder of a company. In other words, you become a part-
owner of that company.

As a part-owner, you participate in the company’s growth and future profits. Conversely, you may
also lose if the company suffers a loss or performs below market expectations.

The number of stocks you acquire will determine how big or small your ownership is. As you
acquire more stocks, your ownership stake in the company becomes greater.

Other terms for stocks are “shares” or “equities”.

Basic Stock Market Terminologies
• BROKER – Can solicit investments from clients. Acts as
intermediary between a buyer and seller, usually charging
a commission; they must be registered with the Securities
and Exchange Commission .

• DEALER- Uses the shares or money of the company to

trade. Refers to an individual or firm acting as a principal
in a securities transaction. Principals trade for their own
account and risk.
 Basic Stock Market Terminologies
• FLOOR PRICE - or floor range. Means the lowest selling price which is set
at not more than 40% below the last traded price.
• OPENING PRICE - is the price at which the first transaction for an issue was
matched.
• CLOSING PRICE - refers to that price at which the last transaction for an
issue was matched during a regular trading day.
• CEILING - or ceiling price or ceiling range. Means the highest buying price
which is set at not more than 50% above the last traded price of a
particular security in the previous trading day.
Basic Stock Market Terminologies
• BEAR MARKET - prolonged period of falling prices. A bear
market in stocks is usually brought on by the anticipation
of declining economic activity, and a bear market in bonds
is caused by rising interest rates.
 Basic Stock Market Terminologies
• BULL MARKET - prolonged rise in the prices of stocks, bonds or
commodities. A bull market is also characterized by high trading volume.
Bull markets are often accompanied by strong investor confidence and
optimistic expectations.
 Basic Stock Market Terminologies
• BID - The highest price a buyer of a security is willing
to pay for a unit of a security at a particular time.
• ASK - The lowest price a seller of a security is willing
to take for a unit of a security at a particular time.
Also called “offer price”.
Basic Stock Market Terminologies

• SETTLEMENT - Transfer of funds from buyer to

seller and the transfer of a stock's title from
seller to buyer.
• DIVIDEND - the share in the profits of a
corporation which is paid to the stockholders
out of the unrestricted retained earnings, in
proportion to the number of shares owned by
the stockholders. May be in the form of cash,
stock or property.
Basic Stock Market Terminologies
• DEPOSITARY RECEIPTS:
– A security which grants the holder the right to the
delivery of sale of the underlying share.
– DR holders are entitled to certain rights, such as cash
payments equivalent to the amount of cash dividends
to which the underlying shares are entitled to.
– DRs are and will continue to be registered in the name
of and owned by the issuer. All rights pertaining to the
shares shall be exercised by the issuer.
– They are not evidences or statements nor certificates
of ownership of a corporation.
 Basic Stock Market Terminologies
Liquidity
• Characterized by high trading activity .
• Usually measured through value turnover.
Formula: Number of Shares x Price = Value Turnover
EXAMPLE: SINGLE TRADE - 100 shares x Php40.00 per share = Php4,000.00
Basic Stock Market Terminologies
Capitalization
• Company’s market value
• Determines a company’s size
Formula: Closing Price x No. of Outstanding Shares
= Market Capitalization
EXAMPLE: Php105.20 per share x 3.65 million shares = 3.84
million shares
 Basic Stock Market Terminologies
Free Float
• Shares freely tradable by the investing public
• Excludes shares with strategic interests in the company: ex.
Directors, officers, principal stockholders
Formula: No. of Outstanding Shares – Number of Strategic Shares
= Free Float Shares

EXAMPLE: 2.18 billion shares – 1.23 billion shares = 950 million shares
Basic Stock Market Terminologies
Foreign Transactions
– Account identifier based on
nationality.
Formula: Foreign Buying – Foreign
Selling = Net Buying (Selling)
EXAMPLE: Php572.15 billion – Php653.07
billion= Php80.92 billion
How to Read Stock Quotes
 How to Read Stock Quotes

NAME - The name of the listed company.

SYMBOL - A unique alphabetic name which identifies the stocks of a
listed company.
BID - The highest price that a buyer is willing and able to purchase for a
share of stock at a particular time, also called the “buyer’s price”.
 How to Read Stock Quotes

ASK - The lowest price that a seller is willing and able to offer for sale
for a share of stock, also called the “seller’s price".
OPEN - The opening price of the stock for the day.
HIGH - The highest traded price of a stock during a specific trading
period.
 How to Read Stock Quotes

LOW - The lowest traded price of a stock during a specific trading

period.
CLOSE - The closing price of the trading day.
VOLUME - The total number of shares traded during a given
period of time.
 How to Read Stock Quotes

CHANGE OF DIRECTION
Comes in the form of a triangle or arrow head pointing either up or
down, which indicates whether the stock is trading higher or lower than the
previous day’s closing price. The colors of the stock ticker symbols indicate
the trading trends.
 How to Read Stock Quotes

Indicates that the stock is trading higher than the previous day’s
close.
Indicates that the stock is trading lower than the previous day’s
close.
Means that the stock is unchanged from the previous day’s
close.
 How to Read Stock Quotes

VALUE - The amount of transactions in peso terms traded on a

particular period. This indicates how much money is turned over
from the trading of stocks.
 TYPES OF STOCKS
According to RIGHTS
a. Common stock – It is a security usually purchased for participation
in the profits and control of ownership and management of the
company. A common stockholder exercises control through voting
rights during annual or special stockholders’ meetings, but can only
claim rights to the company’s assets and earnings when preferred
shareholders are already paid in full.
Most of the issues traded in the local stock market are common stocks.
Common stocks are also known as “ordinary shares.”
 TYPES OF STOCKS
According to RIGHTS
b. Preferred stock – It is a security whereby the holder has a higher claim on the
assets and earnings of the company.

In terms of dividend payment and liquidation, preferred shareholders have priority

over common shareholders. Though preferred stockholders do not have voting rights,
they are entitled to receive dividends before any dividends are paid to the common
stockholders.

Preferred stocks usually have a specified limited rate of return or dividend and a
specified limited redemption and liquidation price.
Preferred stocks are also known as “preference shares.”
 TYPES OF STOCKS
According to OWNERSHIP
a. Class A – These are stocks that can be exclusively traded by Filipino
investors.
b. Class B – These are stocks that can be bought and sold by both
Filipino and foreign investors.
Both classes have the same privilege and receive the same amount of
dividends. Such classification of common shares is done to monitor the
equity ownership of both local and foreign investors.
 TYPES OF STOCKS
According to SECTORS
Stocks listed and traded on the PSE are classified into six (6) sectors:
1. Financial Sector – includes companies engaged in banking, investments,
and finance.
2. Industrial Sector – includes companies involved in the following:
a. Electricity, Energy, Power, and Water
b. Food, Beverage, and Tobacco
c. Construction, Infrastructure, and Allied Services
d. Chemicals
e. Diversified Industrials
 TYPES OF STOCKS
According to SECTORS
3. Holding Firms Sector – includes companies or firms
that control or manage partial or complete interest in
another company or other companies. Usually, these
companies do not produce goods or services itself; rather,
its purpose is to own shares of other companies.
4. Property Sector – includes companies involved in land
and property development
 TYPES OF STOCKS
According to SECTORS
5. Service Sector – includes companies involved in the following:
a. Media
b. Telecommunications
c. Information Technology
d. Transportation Services
e. Hotel and Leisure
f. Education
g. Diversified Services
6. Mining and Oil Sector – includes companies engaged in mineral extraction, oil
exploration, extraction and production.
 TYPES OF STOCKS
According to CHARACTERISTICS

a. Blue Chip stocks – are shares of well-established and financially sound companies that have
demonstrated their ability to pay dividends in both good and bad times. They also exhibit more
modest but dependable returns and are relatively of lower risk.

b. Income stocks – are shares of those companies with good dividend payment history due to
steady profits. Since they are stable, income stocks generally have a lower level of volatility.

c. Growth stocks – also called “glamour stocks”, are shares of corporations whose earnings are
expected to grow at an above-average rate relative to the market. A growth stock does not
usually issue dividends as earnings are reinvested in capital projects.
 TYPES OF STOCKS
According to CHARACTERISTICS

d. Defensive stocks – are shares that provide regular dividends and stable earnings, regardless of
the overall condition of the stock market. Defensive stocks remain stable under difficult economic
conditions. Generally, these are stocks of food, oil, and utilities companies, which are
characterized by steady demand amidst hard times.

e. Cyclical stocks – are those sensitive to business conditions or cycles strongly tied with the
economy’s performance. These companies produce or offer services that are low in demand
during slowdown and increase when business peaks.

f. Speculative stocks – are those that rise quickly when economic growth is strong and falls
rapidly when growth is slowing down. A speculative stock is considered very risky because of its
volatility. It increases or decreases rapidly depending on the economic conditions.
Source:
https://www.pse.com.ph/stockMarket/home.html?
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