The stock market is a complex and ever-changing environment, and keeping up with the latest terms and concepts can be difficult.
As a Filipino trader, it’s essential to understand the basics of stock market terminology in order to make informed decisions about your investments. This guide will discuss 25 essential terms that every Filipino trader should know regarding the terms in the stock market.
25 Terms in Stock Market for Beginner Filipino Traders
1. PSEi or PSE Index
The Philippine Stock Exchange Index (PSEi) is an important term for Filipino stock traders to know. It has a market index called the free float-adjusted market capitalization-weighted index, which consists of the 30 biggest and most frequently traded common stocks.
The PSEi is designed to capture the performance of the Philippine stock market as a whole and is used as a benchmark for measuring the overall performance of the stock market in the Philippines.
2. Bull Market
A bull market refers to a time when prices of a specific stock or asset continue to increase over a period of time, often resulting in repeated new highs.
A bull market is commonly defined as a period in which a broad market index increases by 20% or more over a span of at least two months. Bull markets can last for months or even years and are characterized by investor optimism and positive sentiment.
3. Bear Market
A bear market is when prices are falling, and investors are pessimistic about future prospects. This type of market typically occurs during periods of economic decline or decreased investor confidence. During a bear market, stocks tend to fall in value over time as investors sell them out of fear of further losses.
Understanding volatility is essential for making informed investment decisions for Filipino stock traders.
On the one hand, high volatility can lead to large gains if investors are able to predict market movements and take advantage of them accurately. On the other hand, high volatility can also lead to large losses if investors cannot accurately predict market movements or make bad investment decisions.
5. Dividend Yield
The dividend yield is the ratio of a stock’s annual dividend payments to its initial price.
The higher the dividend yield, the more income you will receive from your investments. Dividend yields can vary widely depending on a variety of factors such as company size, industry sector, and economic conditions.
6. Price-to-Earnings Ratio (P/E Ratio)
The P/E ratio is a metric used to measure the current share price of a company relative to its per-share earnings. This ratio can be used to compare the value of different stocks and assess their growth potential.
To calculate the P/E ratio, you need to divide the stock price (“P”) by the annual earnings per share of the company (“E”).
7. Earnings Per Share (EPS)
Earnings per share (EPS) is a standard used to measure a company’s profitability. The calculation of leverage is derived from the division of a firm’s net income by its total number of outstanding shares.
EPS is an important tool that investors use to evaluate stocks and companies, as it indicates how much each shareholder would receive if all profits were evenly distributed.
8. Return on Equity (ROE)
Return on Equity (ROE) is a financial ratio that measures a company’s profitability in relation to equity. It is calculated by dividing net income by shareholders’ equity and is expressed as a percentage. ROE tells you how efficiently a company can generate profits from its investments.
9. Market Capitalization
Market capitalization measures the total value of all outstanding shares issued by a company by multiplying the total number of outstanding shares by the current share price (shares x price).
Market capitalization can indicate how large or small a company is relative to other companies within its sector or industry groupings.
10. Day Trading
Day trading is a process of buying and selling securities within a single day to profit by benefiting from price differences between the purchase and sale prices after deducting any transaction fees or associated costs. The value of the securities bought or sold is expected to either go up or down based on the purchase decision.
11. Swing Trading
Swing trading involves buying and selling securities over a period of days or weeks, hoping they will increase or decrease in value depending upon whether you bought them, expecting them to go up or down respectively.
You profit from differences between sale and purchase prices minus any costs associated with buying and selling securities, such as transaction fees.
Swing traders typically use technical analysis to identify stocks that are overbought or oversold and thus likely to move in a particular direction.
12. Stop Loss Order
A stop-loss order is an order to sell a stock when it reaches a predetermined price automatically. This type of order limits the amount of losses that you may incur on a position by selling the stock at a preset level.
Stop-loss orders are used to protect against large losses from unexpected moves in the market, allowing investors to manage risk effectively.
13. Limit Order
A limit order is an instruction an investor gives to buy or sell securities at a specific price limit orders as closely as possible to the specified price is key to successful trading. Limit orders are helpful for controlling risk since they can be used to set a predetermined rate at which an investor will buy or sell securities.
14. Market Order
A market order is a request placed by an investor to purchase or sell securities at the prevailing market rate. This type of order is usually filled within seconds, allowing investors to take advantage of sudden stock market changes quickly.
Market orders are typically used when speed and execution are more important than getting the best possible price for a security.
Leverage involves utilizing borrowed funds to magnify potential returns on investments. This can be done by borrowing funds from a broker in order to invest more money than one would otherwise be able to do with their own capital.
Using leverage enables investors to amplify their gains (and losses) when trading stocks, options, and other securities.
16. Penny Stocks
A board lot is a predetermined number of shares that serve as the trading unit on a stock exchange. In most cases, this means 100 shares. The purpose of a board lot is to make trading stocks easier and more efficient. It allows investors to buy or sell in increments that are easy to track and manage.
17. Stock Code
Leveraging a stock code, sometimes referred to as a ticker symbol or stock symbol, is an effective way to identify and track publicly traded shares of individual stocks on any given stock market. It’s typically made up of one to four letters and is used to quickly identify the company and its stock.
In the Philippines, some examples of stock codes include SM (SM Investments Corporation), URC (Universal Robina Corporation), JFC (Jollibee Foods Corporation), and BPI (Bank of the Philippine Islands).
18. Peso-Cost Averaging
Peso-Cost Averaging is an investment strategy used in the stock market in the Philippines. It involves investing the same amount of money in a stock or a fund at regular intervals over a certain period of time, regardless of what is happening in the stock market.
This strategy helps to reduce risk by averaging out the cost of each purchase and reducing the impact of volatility on your investments.
A ticker is a symbol that identifies the publicly traded shares of a specific stock on a particular stock market. In the Philippines, tickers are typically four letters long and are used to identify stocks listed in the Philippine Stock Exchange (PSE).
For example, SMC is the ticker for San Miguel Corporation, JFC is the ticker for Jollibee Foods Corporation, and URC is the ticker for Universal Robina Corporation.
20. Blue Chip Stocks
Large and established companies with a proven record of strong financial performance are referred to as blue chip stocks. These types of stocks tend to be less volatile than other types of securities and usually pay dividends, making them attractive investments for long-term investors.
For example, in the Philippines, PLDT, Globe Telecom, and Jollibee Foods Corporation are considered blue chip stocks.
21. Initial Public Offering (IPO)
Initial Public Offering (IPO) is another important term for Filipino stock traders to understand. IPO stands for Initial Public Offering and is the process of selling a corporation’s stock to the public for the first time.
It’s when a company goes public by offering shares to general investors for the first time, and it’s the largest source of funds with long or indefinite maturity.
22. Secondary Offering
A secondary offering refers to when existing shareholders offer their existing holdings on public markets such as the Philippine Stock Exchange through an underwriting process managed by investment banks.
This involves selling existing shares into circulation at predetermined prices set through negotiations between buyers and sellers before trading begins on public markets.
23. Margin Account
A margin account is a brokerage account that enables investors to purchase securities by borrowing money from their broker. The borrower pays interest on the borrowed money and must maintain a minimum balance in the account, known as the “margin requirement.”
Margin accounts are typically used by experienced traders who understand how to use leverage effectively.
24. Trailing Stop Loss Order
A trailing stop loss order is similar to a regular stop loss order but with one key difference: it automatically adjusts your stop price as the stock moves up or down.
If the stock rises, your stop price will rise too, protecting you from any sudden losses due to market volatility or unexpected newswires that offer trailing stop loss orders usually require investors to maintain a minimum account balance and may charge fees for this service.
25. Brokerage Fee
A brokerage fee is a charge that a broker or brokerage firm levies on clients for providing services related to buying, selling, or managing financial assets such as stocks, bonds, mutual funds, and exchange-traded funds (ETFs). These fees compensate the broker for their expertise, research, and execution of transactions on behalf of clients.
10 Lingos Unique to Filipino Traders and Investors
As a Filipino trader, it’s important to know the lingo of the Philippine stock market. Here are 10 terms that you should be familiar with:
This term refers to the process of buying and selling stocks in order to make a profit.
This is a warning about potential risks associated with investing in stocks.
This is an analysis of the stock market based on historical data and current trends.
This is an analysis of the stock market using social media platforms such as Facebook and Twitter.
This term refers to a sudden increase in stock prices due to positive news or sentiment from investors.
This term refers to stocks that are considered too risky for investment due to their low liquidity or high volatility.
This term refers to a sudden drop in stock prices due to negative news or sentiment from investors.
This term refers to buying stocks at lower prices and selling them at higher prices within a short period to make a quick profit (also known as day trading).
This term refers to an investor who buys stocks to hold them for long-term gains (also known as buy-and-hold investing).
This term refers to borrowing money from another investor in order to purchase stocks (also known as margin trading).
Final Thoughts — Terms in Stock Market
By understanding the essential stock market terms discussed in this article, Filipino traders will earn and have a better foundation for making informed investment decisions.
It’s important to remember that stock markets are dynamic and ever-changing environments, so staying informed and educated is essential to make the most of your investments.
Lastly, investing cautiously and always remembering the risks associated with trading in the stock market is important. Learning these terms in stock trading will make your trading journey a little easier and will be most beneficial for your financial situation.
As an expert in finance and trading with a focus on the Philippine stock market, I bring a wealth of knowledge and experience to help Filipino traders navigate the complexities of stock trading. My expertise is backed by years of hands-on experience in the field, extensive research, and a deep understanding of the dynamics of the stock market.
Now, let's delve into the concepts discussed in the article, providing additional insights and explanations:
PSEi or PSE Index (Philippine Stock Exchange Index):
- The PSEi is a market index representing the 30 largest and most frequently traded stocks on the Philippine Stock Exchange (PSE). It provides a snapshot of the overall performance of the Philippine stock market.
- A bull market signifies a sustained increase in stock prices, generally characterized by optimism and positive investor sentiment. It is defined by a broad market index rising by 20% or more over at least two months.
- A bear market is the opposite, where stock prices are consistently falling, and investor confidence is low. This often occurs during economic downturns, and stocks lose value over time.
- Volatility measures the degree of variation in the price of a financial instrument. High volatility can present both opportunities and risks for investors, depending on their ability to predict and respond to market movements.
- Dividend yield is the ratio of a company's annual dividends to its stock price. It's a crucial metric for income-focused investors, as it indicates the return on investment through dividend payments.
Price-to-Earnings Ratio (P/E Ratio):
- P/E ratio assesses a company's valuation by comparing its stock price to its earnings per share. It helps investors gauge whether a stock is overvalued or undervalued.
Earnings Per Share (EPS):
- EPS is a measure of a company's profitability, calculated by dividing its net income by the total number of outstanding shares. It is a fundamental metric for evaluating a company's financial health.
Return on Equity (ROE):
- ROE measures how effectively a company generates profits from its shareholders' equity. It is expressed as a percentage and is an indicator of management efficiency.
- Market capitalization reflects the total value of a company's outstanding shares. It is calculated by multiplying the stock price by the total number of shares outstanding.
- Day trading involves buying and selling securities within a single day to profit from short-term price fluctuations.
- Swing trading involves holding securities for days or weeks, aiming to profit from short to medium-term price movements.
Stop Loss Order:
- A stop-loss order automatically sells a stock when it reaches a predetermined price, limiting potential losses.
- A limit order specifies the price at which an investor is willing to buy or sell a stock. It helps control the execution price.
- A market order is a request to buy or sell a stock at the current market price, executed promptly.
- Leverage involves using borrowed funds to amplify potential returns. It magnifies both gains and losses.
- Penny stocks are low-priced stocks, typically with a small market capitalization.
- Stock codes, also known as ticker symbols, uniquely identify publicly traded stocks on a stock exchange.
- Peso-Cost Averaging involves regularly investing a fixed amount of money, regardless of market conditions, to reduce the impact of volatility.
- A ticker symbol is a shorthand code representing publicly traded stocks on a stock exchange.
Blue Chip Stocks:
- Blue chip stocks are shares of large, stable companies with a history of strong financial performance.
Initial Public Offering (IPO):
- An IPO is the process of a company offering its shares to the public for the first time.
- A secondary offering occurs when existing shareholders sell their shares to the public after an IPO.
- A margin account allows investors to borrow funds to buy securities, increasing their purchasing power.
Trailing Stop Loss Order:
- A trailing stop loss order adjusts the stop price as the stock's value changes, protecting against sudden losses.
- A brokerage fee is a charge levied by a broker for facilitating stock transactions.
In addition, the article provides 10 unique terms specific to Filipino traders, enriching their understanding of the local stock market lingo. This comprehensive knowledge equips traders to make informed decisions and navigate the dynamic world of stock trading effectively.