How to invest in the Philippine stock market
Planning to invest in the Philippine stock market soon? Make sure you understand the basics of stock market investing before you take that plunge!
Don’t worry, we have a short recap and refresher course below, intended primarily for newbie investors who are thinking of taking that first step to become a stock trader or investor!
What are stocks?
Stocks represent your share of ownership in a corporation. As a stockholder, you are considered a part-owner of the company, which means you have various rights, including the right to vote the members of the board, the right to receive dividends, the right to inspect the books of the company, and the right to take part in the residual distribution of income, among others.
How do I make money from stocks?
There are various ways to profit in stock market investing. The very basic form is capital gains or price appreciation, which is the difference between the current price of a stock and the price you initially bought it. If, for example, years ago you bought a PLDT share for P2,500 and right now it trades at P3,200, the price difference of P700 represents your capital gains from owning the PLDT stock.
Another form of income is dividend. This represents the distribution of earnings of the company to its shareholders. Dividends may be in the form of cash or stock, and if you want to learn more about dividends, read through our Guide on Dividends in Stock Investing.
Another way to earn money in stocks is by receiving stock rights. Stock rights are options given to current shareholders to buy additional shares of the company’s stock at a price lower than the market price. Since the set price is lower than the market price, the shareholder can already sell these stocks in the stock market for instant profits.
How much money do I need to invest in the Philippine stock market?
The simple answer to this question is that it depends on the minimum amount needed to open an account with your stockbroker. You cannot buy and sell PSE stocks without a broker, so that means you need to open a trading account with them to start participating in the stock market.
At present, some brokers merely require P5,000 to open an account with them. Check out our comparison of online stock brokers in the Philippines to see the minimum required investment, broker’s commission fee, and contact information per broker.
Actual trades must follow the Board Lot. The PSE Board Lot table shows the minimum number of shares that can be bought or sold for a given stock and the minimum price increment required for each trade. Here’s a guide on How to use the PSE Board Lot table.
Where do I find a stock broker?
In the Philippines, there are dozens of active and duly licensed stock brokerage firms. Want to see which ones are preferred by PinoyMoneyTalk members? Here are the results of a poll asking about the best online stockbrokers in the Philippines.
Do I need to pay income taxes when I invest in stocks?
When you make a buy or sell transaction in the PSE, you are automatically charged VAT and stock transaction taxes for every completed trade. That means there is no need anymore to pay separate income tax or capital gains tax for your stock investments. For more information about the fees and taxes paid when buying and selling stocks, click this link.
How much should stock prices rise so that I’ll earn a gain despite the fees?
There are fees and taxes charged to you whenever you buy or sell stocks so make sure you consider them when computing the right price to sell your stock. The so-called “breakeven point” or the ideal price increase percentage will actually depend on the broker’s commission fee.
But for a sample 0.25% broker’s commission, the stock price should increase at least 1.09% so that you can break even considering the costs and fees charged to you. (See sample computation of fees charged in PSE transactions.)
After selling my stocks, when can I receive the cash proceeds?
Cash proceeds from sales of stocks are usually credited to your account after three (3) working days. Some brokers, however, allow you to make new buy trades using those proceeds without the need for clearing. If you wish to withdraw the funds from your account, though, you have to wait 3 days before the cash is credited to your account so that you can request for a withdrawal.
Are stock investments guaranteed?
No, stocks are not covered by the Philippine Deposit Insurance Corp. (PDIC) and brokers make no guarantee that you will earn money from stock trading. Do note that it is possible to lose money in the stock market.
I need more information about how to invest in the Philippine stock market.
Don’t worry, you can refer to:
Happy smart investing!
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