(Tutorial) What are Stocks?

What are STOCKS? What are SECURITIES?

Stocks are shares of ownership in a corporation. When you become a stockholder or shareholder of a company, you become part-owner of that company.

Securities, on the other hand, are proof of one’s ownership or indebtedness in a company. Examples of securities are treasury bills and commercial papers, which are considered as short-term and are traded in the money market; and stocks and bonds, which are long-term and traded in the capital market. Securities are easily bought and sold in the stock market.

What types of securities can I buy in the stock market?

Most of the issues listed in the Philippine Stock Exchange (PSE) are common stocks. Other types of securities such as preferred stocks, warrants, PDRs and bonds are also traded.

• Common Stocks – These are usually purchased for participation in the profits and control of ownership and management of the company. Holders of common stocks have voting rights. They are also entitled to an equal pro rata division of profits without preference or advantage over another stockholder. However, they have the last claim on dividends and are the last to collect in case of corporate liquidation.

• Preferred Stocks- Its name is derived from preference given to the holders of these stocks over holders of common stocks. Holders of preferred stocks are entitled to receive dividends, to the extent agreed upon, before any dividends are paid to the holders of common stocks. However, preferred stocks usually have a specified limited rate of return or dividend and a specified limited redemption and liquidation price.

• Warrants – A corporation can also raise additional capital by issuing warrants. A warrant, normally issued on a detachable basis, allows its holders the right, but not the obligation, to subscribe to new shares at a set price during a specified period of time. It is usually provided free of charge and traded separately in the securities market.

• Philippine Deposit Receipts (PDRs) - A PDR is a security which grants the holder the right to the delivery or sale of the underlying share, and to certain other rights including additional PDR or adjustments to the terms or upon the occurrence of certain events in respect of rights issues, capital reorganizations, offers and analogous events or the distribution of cash in the event of a cash dividend on the shares. PDRs are evidences or statements nor certificates of ownership of a foreign/foreign-based corporation. For as long as the PDRs arenot exercised, the shares underlying the PDRs are and will continue to be registered in the name of and owned by and all rights pertaining to the shares shall be exercised by the issuer.

• Small-Demominated Treasury Bonds (SDT-Bonds) – The SDT Bonds are long-term and relatively risk-free debt securities issued by the Bureau of Treasury (BTr) of the Republic of the Philippines. The bond is a certificate of indebtedness of the Republic of the Philippines to the owner of the SDT-Bonds.

Where can I buy shares of Stocks and/or Bonds?

In the Philippines, the only operating stock exchange is the Philippine Stock Exchange (PSE). Its main function is to facilitate the buying and selling of stocks and other securities through its accredited trading participants.

The PSE has two trading floors – PSE Centre in Ortigas, Pasig City and PSE Plaza in Ayala, Makati City – where trading participants trade daily – from 9:30 a.m. to 12:10 p.m. except Saturdays, Sundays, legal holidays and days when the Central Bank Clearing Office is closed.

Other references:

• Stock Trading 101: Guide and Tutorial to Stocks
• Stock Discussion of all PSE Listed Firms
• Discussion Forum on Stock Trading

Note: This is the first of several parts of Pinoy Money Talk’s primer on how to earn from trading and investing in the stock market, particularly the Philippine stock market.

Article source: Philippine Stock Exchange. Photo Credits: FreeImages.co.uk

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