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TOP TEN Terms Commonly Used In Stock Market



stock-market-like-a-market

After reading the Introduction and Self-assessment, convinced that you are now ready, it is time to understand the terminologies being used in the stock market for you to be able to use them well according to your intended purpose.

If you haven’t read my previous posts about introduction and self-assessment phase, you can read it first. The basics of the stock market are quite easy. Here are the terms that you should study beforehand.


Stocks

In its simplest sense, it is the capital raised by the company to continue its operations. This may be sometimes called informally as crowd-funding. Instead of lending money from banks or other financial institutions, companies prefer to sell their capital to the public.

In this manner, they would have no liabilities and future obligations from another firm. That is why you often hear “companies sell stocks”.
Example: I bought 3,000 stocks of Apple last week.

Stock Market

This is often confused with stock exchange. However, there is a slight difference. Stock market is a place where stocks are being bought and/or sold.

Simplified, it is more or like a “public market” where people buy and/or sell dry and wet goods. Thus, stock market is the venue of stockbrokers to transact business in behalf of their clients.
Example: The Philippinestock market crashed because of the global recession.

Stock Exchange

Is a private firm who facilitates the stock market. Facilitate in a way that they provide the equipment and the facilities to stockbrokers to complete the transactions.

These can be in form of the building (which stockbrokers use), the trading platform (where stockbrokers monitor and accomplish transactions), computers (for smooth flow), telephones, printers, etc.

Thus, New York Stock Exchange, Philippine Stock Exchange is simply a private company engaged in the stock market. That is why they are commonly called as stock market.
Example: Philippine Stock Exchange Inc (PSEi) grew 6.5% in June due to massive trades in the stock market.


Stock Certificate

It is a certificate that contains/documents ownership of a corporation. Stipulated in the certificate is your name, shares in the corporation and the name of the company itself.

In real estate, it is called as “Land Title” which serves as your official document in the ownership of a property.
Example: I saw my friend’s stock certificate that indicates her 3% stake of Google.

Shares

Still the same in the laymen’s term – the fraction of the big chunk that you own. However, in stock market it represents the assets you own in a corporation.

Shares can be expressed both in the number of shares own or the percentage of the whole asset. You might say 50,000 shares or 5% share.

In most cases, percentage is often used when someone has a majority stake of a corporation because ownership can be expressed explicitly in terms of percentage. Else, if stake is way smaller, the number of shares is preferable.
Example: I have 50,000 shares of Microsoft due for selling.

Dividend

The part of the earnings of a corporation which is given to the shareholders. Dividend is proportional to the shares that you have in a corporation.

Usually, dividends are given to shareholders as a gratitude for investing in them and to encourage shareholders for further investment which in turn spur the economic growth of the company.
Example: Jessel was astonished with the P20.00 dividend/share from San Miguel Corporation.

Lot

It is the minimum number of stocks that can be bought in a certain corporation. In buying stocks, there is a minimum order that can be bought by the public. Say, Apple has a minimum of 50 lots.

If the current price of Apple is Php40,000 per share, then you have to invest Php2M (Php40,000 x 50 lots) to buy Apple’s stock. You cannot buy even 40 lots or even 49 lots. It is the required number of share to have ownership of a company.

The number of lots also represents the increment orders. In our example, if you buy more than 50 lots of Apple’s stock, you can only have 100, 150, 200, 250 lots and so on. Meaning, orders should be by 50 and nothing else.
Example: Minimum order of Google’s stock is 50 lots at $750/share.

Stockbroker

Is the agent of buying and selling stocks. They are the representative to conduct business in behalf of their clients. Stockbrokers often advise clients in terms of market situations and recommend trade positions because they are the ones constantly monitoring the stock market.

They earn thru commissions in every trade placed by their clients.
Example: COL Financial is the newest stockbroker in the Philippines.

Stockholder

Is a person or a company who owns shares of stock in a corporation. Meaning, anyone who owns a certain share of a corporation is called a stockholder.

There is no shares requirement when referring to a stockholder.
Example: I’m proud to be a stockholder of San Miguel Corporation (SMC).

IPO

Initial Public Offering. It is the corporation’s first offer to sell stocks to the public. This is applicable to companies who transform their business organization from sole propriety or ownership to a publicly-traded corporation.

One of the reasons why firms go public is because they want to raise more funds usually for expansion purposes.
Example: Sterling Bank is the newest IPO on the list this month.


Understanding the terms help investors trading in the stock market. With the right knowledge, proper decisions are made. Thanks for visiting my post! You can check my other posts below. Happy investing!

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