Today I will share 15 basic stock market terminologies a beginner should know to provide additional information on our stock market investing journey. After my previous article which is the super-newbie guide on how to invest in stock market, I hope this post will give you another information about investing in the stock market.
If you don’t read that yet, please do. Especially if you’re just starting like many of us. The more information we grab, the more chances of learning.
Here are the 15 stock market terminologies.
1. PSEi or PSE index
The Philippine Stock Exchange Composite Index (PSEi), formerly called Phisix, is a fixed basket of thirty (30) common stocks of listed companies, carefully selected to represent the general movement of the stock market.
In other words, it is the benchmark measuring the performance of the Philippine stock market.
The selection of these companies is based on a specific set of criteria. Under the revised policy on index management, companies should meet three (3) criteria to qualify under the PSEi (source: PSEAcademy.com.ph):
- The company’s free float level must be at least 12%.
- The company must rank among the top 25% in terms of median daily value in nine out of the twelve-month period in review.
- Ranking of TOP 30 qualified companies based on full market capitalization.
As of April 2015, here is the list of the 30 companies composing the PSEi (source: PSE website).
The PSEi is also divided into 6 index sectors namely: Financials, Industrial, Holding Firms, Services, Mining and Oil and then Property. The list of the 30 companies above fall into different 6 different sectors mentioned.
2. Trading Hours
Trading hours is basically the schedule of trading in the Philippine stock market. It is important to know and be aware of the schedule so that we can buy/sell our stocks accordingly.
This also helps many Pinoys abroad who are also investing in stock market to schedule their activities in investing in the stock market.
The image below shows the trading hours in the Philippine stock market and also explain the activity of each scheduled hours (Source: COL Financial website). Please note that this is in Manila time.
3. Board Lot
3rd on the list of our stock market terminologies is the board lot. The Board Lot is the minimum number of shares one can purchase or sell a stock at a specific price range.
The table below shows the board lot in the Philippine stock market.
Ex. A market price of P3.00/share will allow you to buy/sell a minimum of 1,000 shares or in added increments of 1,000. Any order size below its Board Lot is known as an Odd Lot and can only be traded in the Odd Lot market. The Odd Lot Market may have different pricing schemes than the Main Market.
The Price Fluctuation column shows the minimum increments of which a stock price can change.
Ex. A stock price at P3.00 may accept orders to post up or down by increments of P0.01; at P12.00 it may move up or down by P0.02.
If you’re watching ANC or any other business channel, you may observe that sometimes they are providing a stock market update via a scrolling ticker at the bottom of the screen.
These consist of stock information like the stock code, price, no. of shares, buying broker/selling broker and have some specific colors like green, red or yellow. That is called the ticker.
Here’s a more detailed information about the Philippine stock market ticker.
The PSE stock ticker shows a string of transactions or ticks of stocks currently being traded real-time. It serves to show which issues are active and what their current market prices are as well as to show details about the trade whether it is up, down or unchanged for the day.
Stocks are 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.
Currently there are 270 stocks listed in the PSE right now. You can check them all in PSE official website.
6. Stock Code/Symbol
A one-character to three-character, alphabetic root symbol, which represents a publically traded company on a stock exchange.
Example: ALI for Ayala Land Inc, JFC for Jollibee Corporation
7. Blue Chip Stocks
7th on the list of our stock market terminologies is called blue chip stocks. These are the large, industry leading companies. They offer a stable record of significant dividend payments and have a reputation of sound fiscal management.
The expression is thought to have been derived from blue gambling chips, which is the highest denomination of chips used in casinos.
Example: PLDT, SM, JFC and other giant companies.
8. Penny Stocks or Speculative stocks
Some trading experts called it basura stocks. A stock that trades at a relatively low price and market capitalization, usually outside of the major market exchanges.
These types of stocks are generally considered to be highly speculative and high risk because of their lack of liquidity, large bid-ask spreads, small capitalization and limited following and disclosure (source: Investopedia).
9. Bull Market
This is when the stock market as a whole is in a prolonged period of increasing stock prices. Opposite of a bear market. The index is green at this phase illustrated as green bull on the image above.
10. Bear Market
This is trading talk for the stock market being in a down trend, or a period of falling stock prices. This is the opposite of a bull market. See the red bear on the image above for illustration.
11. Peso-Cost Averaging
Peso Cost Averaging is a strategy that long-term investors use to invest in the stock market. It involves investing a fixed amount of money at regular intervals over a long period of time (10- 20 years).
You do this regardless of the situation in the market, government, or the rest of the world (source: PesosandSense).
12. Initial Public Offering (IPO)
Initial Public Offering or IPO is a process whereby a privately held corporation offers for sale its shares of stock for the first time to the public in order to raise capital to fund investments and business expansion.
On a normal investors perspective, we can subscribe to the IPO of a given company through our stock broker. They usually make an announcements on how to avail stock on the IPO of the company going public.
Dividends are paid out to shareholders, representing earnings of the company that is not going to be reinvested in their business. In general, there are two types of dividends that can be given by companies: cash and stock dividends.
Cash dividend is the earnings for every share of stock declared by the company. So, if the company declares a dividend of 50 centavos per share, a stockholder with 10,000 shares will receive a cash dividend of Php5,000.00, gross of tax (Php0.50 x 10,000) in cash.
Stock dividends are additional shares given to shareholders at no cost. If the company declares a 25 percent stock dividend, a stockholder with 10,000 shares will be entitled to an additional 2,500 shares of stock. These shares can also be sold anytime after the shares have been issued.
Ex-Date – the cut off point for dividend entitlement is a day before this date (you must be a shareholder as of the day previous to this date)
Date Payable – the day when the dividend is given to shareholder (usually a month after the Ex-date)
You can read more about dividends here.
14. Fundamental Analysis
The analytical method by which only the sales, earnings and the value of a given tradable’s assets may be considered.
15. Technical Analysis
A form of market analysis that studies demand and supply for securities and commodities based on trading volume and price studies. Using charts and modeling techniques, technicians attempt to identify price trends in a market.
UPDATE: I’m so honored that many newbies found the list above helpful and informative. That’s why I created a part II of this tutorial. You can check my new article, stock market terminologies for beginners Part II here.
That’s it! I hope the list of basic stock market terminologies above provided you additional information that can help you in your stock market investing journey.
Always remember that investing in ourselves with knowledge like this will help us be more knowledgeable. Let us continue learning and educate ourselves to be more financially literate.
Let’s also help others by sharing what we know. Let’s spread financial literacy, one blog at a time.