Capital market is a market where buyers and sellers engage in trade of

financial securities like bonds, stocks, etc.

 The buying/selling is undertaken by participants such as individuals and
institutions.
Capital markets help channelize surplus funds from savers to institutions
which then invest them into productive use.
Generally, this market trades mostly in long-term securities.
Capital market consists of:
Primary markets deal with trade of new issues of stocks and other
securities.
This primary market is where stocks are actually created and sold—which
is called “floated”—to the public for the first time. The first sale of stock by a
company to the public is an initial public offering, or IPO. And though
technically these IPO shares are sold to the public, it’s not to the general
public; rather, these shares are mainly sold to large institutional investors
that have the kind of capital the issuing company is trying to raise.
Secondary market deals with the exchange of existing or previously-
issued securities.
In the secondary market, trades take place between investors, without the
involvement of the issuing companies. For example, if you buy shares in
Coca-Cola, you’re purchasing those shares from another investor; the
Coca-Cola Company itself is not directly involved in the transaction.
The Primary Market for Common Stock
The primary market for common stock is how new securities are first
brought to market.
It is best known as the market for initial public offerings (IPOs).
An IPO occurs when a company offers stock for sale to the public for the
first time.
Typically, the company is small and growing, and it needs to raise capital
for further expansion.
An investment banking firm, among other things, specializes in arranging
financing for companies by finding investors to buy newly issued securities.
Investment banker agrees to underwrite the stock issue,
an underwriter assumes the risk of buying newly issued securities from a
company and reselling them to investors.
A fixed commitment underwriting arrangement occurs when the investment
banker guarantees the firm a fixed amount for its securities.
A best effort arrangement occurs when the investment banker does not
guarantee the firm a fixed amount for its securities.
After the underwriting terms are decided, much of an investor's time will be
devoted to the mechanics of the offering. In particular, before shares can
be sold to the public, the issue must obtain an approved registration with
the Securities and Exchange Commission (SEC).
The prospectus is the document prepared as part of a security offering
detailing information about a company's financial position, its operations,
and investment plans for the future.
A prospectus is a legal disclosure document that provides information about
an investment offering to the public, and that is required to be filed with the
Securities and Exchange Commission (SEC). The prospectus contains
information about the company, its management team.
Once the prospectus is prepared, it is submitted to the SEC for approval.
The SEC makes no judgment about the quality of the company's  or the
value of company stock. Instead, it only checks to make sure that various
rules regarding full disclosure and other issues have been satisfied.
While awaiting SEC approval, company's investment banker will circulate a
preliminary prospectus among investors to generate interest in the stock
offering. This document is commonly called a red herring because the
cover page is stamped in red ink indicating that final approval for the stock
issue has not yet been obtained.
Along the way, the underwriter will usually place announcements in
newspapers indicating how to obtain a prospectus. Because of their
appearance, these announcements are known as tombstones, and they are
a familiar sight in the financial press.
 The Secondary Market for Common Stock
In the secondary market for common stock, investors buy and sell shares
with other investors.
Secondary market stock trading among investors is directed through three
channels. An investor may trade:

1. directly with other investors,

2. indirectly through a broker who arranges transactions for others, or
3. directly with a dealer who buys and sells securities from inventory.
For individual investors, almost all common stock transactions are made
through a broker.
Large institutional investors, such as pension funds and mutual funds, trade
through both brokers and dealers, and also trade directly with other
institutional investors.
In the securities markets, a dealer stands ready to buy securities from
investors wishing to sell them and sell securities to investors wishing to buy
them. An important part of the dealer function involves maintaining an
inventory to accommodate temporary buy and sell order imbalances.
The price a dealer is willing to pay is called the bid price.
The price at which a dealer will sell is called the ask price (sometimes
called the offered or offering price).
The difference between the bid and ask prices is called the spread.
The Stock Market
The stock market is the place where people converge to buy and sell
shares or stocks through an authorized stockbroker. That means once you
have your broker and enough money to buy stocks, you can readily start
investing in the stock market and brand yourself as a noble shareholder of
giant fantastic companies.
Stocks
Stocks are simply shares of ownership in a corporation. Thus anyone
owning stocks or shares of a company is called the company’s shareholder
or stockholder. Being a part-owner, you partake in the performance,
growth, earnings and profits, as well as losses, of these companies.
The PSE
In the Philippines, the Philippine stock market is the place where you can
invest in Philippine Stock Exchange (PSE) - listed companies. And only
those people or firms accredited by PSE as authorized brokers can
participate directly in trading and putting buy or sell orders.
Why Stock Market?
The fact is that stock market is not the only type of investment present in
the capital market.
But history has proven that investing in the stock market over the long-term
has outperformed all fixed-income instruments, plus it offers good
protection against inflation. The market undeniably continuously
experiences highs and lows, dumps and trumps, and blows and dips, but
these short-term pictures are just tiny pixels compared to the general
uptrend portrait recognized in the long run.
Reading the Stock Quote

52-
Current Price Previous 52-Week
Symbol Name Week PE
(%) Close High (%)
Low

Ayala 880
AC 744 (1.64%) 732 360 13.747
Corporation (18.28%)

BDO
95.75 (1.92% 161.8
BDO Unibank, 93.95 75 9.556
) (68.98%)
Inc.

BPI Bank of the 73 (-3.69%) 75.8 100.5 48 11.424

Philippine
 Islands (37.67%)

Symbol - A stock symbol is a unique series of letters assigned to a security

for trading purposes. Symbols are just a shorthand way of describing a
company's stock, so there is no significant difference between those that
have three letters and those that have four or five. Stock symbols are also
known as ticker symbols.
Name – Name of the company.
Current Price (%) – current price of the stock for the day.
Green indicates the stock is trading higher than the previous day’s close
Red indicates the stock is trading lower than the previous day’s close.
Close – closing price of the stock for the trading day (investors and other
stakeholders base their decisions on closing stock prices)
52 week High (%) – the highest price at which a stock has traded during
the previous year
52 week Low – the lowest price at which a stock has traded during the
previous year
“52 week range” for the stock is the highest and lowest stock prices for the
stock over a one year period.
A stock’s opening price is not identical to its prior day closing price. The
difference is because after-hours trading has changed investor valuations
or expectations for the stock.
PE (Price Earnings) - A higher PE suggests high expectations for future
growth, perhaps because the company is small or is rapidly expanding
market. For others, a low PE is preferred, since it suggests expectations
are not too high and the company is more likely to outperform earnings
forecasts. An earnings report tells how the company is performing. A P/E
ratio tells how investors perceive how the company is performing. In other
words, how much they are willing to pay for a peso worth of earnings.
Why Do Companies Issue Stock?
Companies issue stock to get money for various things, which may include:
Paying off debt
Launching new products
Expanding into new markets or regions
Enlarging facilities or building new ones
Shares
A share of stock is literally a share in the ownership of a company.
When you buy a share of stock, you are entitled to a small fraction of the
assets and earnings of that company.
Assets include everything the company owns (buildings, equipment,
trademarks), and earnings are all of the money the company brings in from
selling its products and services.
Companies offer to sell the public shares of their stocks.
They are called "shares" because you actually own a share of the
company when you buy its stock.
For example: BDO offers shares. The stock symbol is BDO. Banco de Oro
decides how many shares it wants to make available in an initial offering.
After that, the only shares available are the ones other traders decide to
sell. You can buy shares of BDO, as long as someone else is selling them.
If there were a per-share price of P12 for BDO, you could by 1,000 shares
for P12,000. Sometimes a company will offer a second round of shares, but
that is rare. Usually the supply is limited to the number of shares the
company originally offered.
Authorized Shares
Authorized shares refer to the largest number of shares that a single
corporation can issue.
The number of authorized shares per company is assessed at the
company's creation and can only be increased or decreased through a vote
by the shareholders.
If at the time of incorporation the documents state that 100 shares are
authorized, then only 100 shares can be issued.
The number of authorized shares can be changed by way of a vote from
shareholders, typically during the annual shareholder meeting.
Outstanding Shares
The actual shares issued or sold to investors from the available number of
authorized shares.
This number represents all the shares that can be bought and sold by the
public, as well as all the restricted shares that require special permission
before being transacted.
Issued Shares
Issued shares are the shares that a company issues.
Its shareholders and investors hold these shares.
The company issues these to the people in the Company or the general
public and some large investment institutions.
Example of Issued and Outstanding Share
Apex Mining company (APX) has 50,000 issued shares. It buys back 2,000
shares and does not retire them, i.e., they will be held as treasury stock by
the Company. What is the number of outstanding shares?
Outstanding shares = Issued shares – Treasury stock
Thus, outstanding shares = 50000 – 2000 = 48,000 outstanding shares
Market Capitalization
Market capitalization means the total value of a particular company if it sells
all its shares in the stock market at the current market price.
Market capitalization indicates the value in terms of money if all the
shareholders want to liquidate their position after selling the stock holding
at a particular point of time.
When a particular business is valued, the common base which is being
taken is the market capitalization of the particular company as it is the
value which is given by the traders and the investors depending upon the
meter of business and quality of business of the particular stock.
The formula of market capitalization is as follows:
Market Capitalization = Total Number of Shares Allotted by the Company *
Current Market Price of each Share
Example:
Asian Terminals, Inc. (ATI) has equity shares of 1,000,000 which is listed in
the stock exchange. The current market price of each share is P25.30.
Calculate the Market Capitalization of the Company.
Market Capitalization of ATI = (1,000,000) (25.30) =  P25,300,000.00
Example:
Market Capitalization of ACR Industries is P7,136.52 ; Find out the Number
of Shares trading in the Stock exchange if the Current Market price of each
share is P496.20.
Total Number of Shares Allotted by the Company = Market Capitalization /
Current Market Price of each Share
Total Number of Shares Allotted by the Company = P7,136.52 / P 496.20
Total Number of Shares Allotted by the Company = 14.38 shares
Example:
BHI, Holdings, Inc. has equity shares of 14, 470,000 which is listed in the
PSE. The current market price of each share is P18.00. Calculate the
Market Capitalization of the Company.
Market Capitalization = Total Number of Shares Allotted by the Company *
Current Market Price of each Share
 Market Capitalization of BHI, Holdings, Inc. = (14,470,000) (18)
Market Capitalization of BHI, Holdings, Inc. = P260,460,000.00
*Market capitalization measures what a company is worth on the open
market, as well as the market's perception of its future prospects, because
it reflects what investors are willing to pay for its stock.
Types of capitalization
 
Although there is one set of framework for delineating the various market
caps. There are certain widely set standards for every capitalization. The
most important ones include:

1. Mega cap including companies with a market cap of P200 billion and
more.
2. Large cap including companies featuring a market cap of over P10
billion.
3. Mid cap featuring companies with a market cap of P2 billion to P10
billion.
4. Small cap includes generally new or comparatively young companies
with a market cap ranging from P250 million to P2 billion.
5. Micro cap denotes market cap below P250 million.
6. Nano cap includes companies featuring a market cap below P50
million.
Gains
You can keep your stock for as long as you want, whether you hold it for a
day or a decade.
When you decide you do not want it anymore, you can sell it.
If you bought BDO for P12.00, and you check the stock price one day to
find it is worth P20.00 per share, you may decide to sell it.
That means you would make a profit of P8.00 per share. If you have 1,000
shares of BDO that you bought for P12.00 per share, you spent P12,000.00
when you bought them. If you sell your 1,000 shares for P20.00, you get
P20,000.00 from that sale.
Subtract your original P12,000.00 investment, and you see that you made
P8,000.00 profit.
Losses
You can lose money on a stock.
If you buy BDO for P12.00 and it drops to P6.00 per share, you do not have
to sell it, but if you do sell it at that price, you lose P6.00 per share.
If you own 1,000 shares, that means you lose P6,000.00. Your original
1,000 shares would have cost you P12,000.00 and you would have sold
them for P6,000.00.
You have the choice of holding on to the stock to see if the share price
eventually comes back up and gives you a profit.
What Kinds of Stocks are there?
There are two main kinds of stocks, common stock and preferred stock.
Common stock entitles owners to vote at shareholder meetings and
receive dividends.
Preferred stockholders usually do not have voting rights but they receive
dividend payments before common stockholders do, and have priority over
common stockholders if the company goes bankrupt and its assets are
liquidated.
Common and preferred stocks may fall into one or more of the following
categories:
Growth stocks
Have earnings growing at a faster rate than the market average.
Such uncertainty arises from the fact that growth stocks usually pay low or
no dividends.
Hence, the investor only profits from the investment in the long term,
provided the company performs well.
A start-up technology company is likely to be a growth stock.
Income stocks
Income stocks (also referred to as income investments) are considered to
be investments that will produce a steady stream of regular income for the
duration that the investment is held.
These typically can include investments like bonds, real estate, real estate
investment trusts, limited partnerships, annuities, certificates of deposit,
money market funds, mutual funds and stocks.
Pay dividends consistently.
Investors buy them for the income they generate.
An established utility company is likely to be an income stock.
Value stocks
A value stock is a security trading at a lower price than what the company’s
performance may otherwise indicate.
Investors in value stocks attempt to capitalize on inefficiencies in the
market, since the price of the underlying equity may not match the
company’s performance.
Have a low price-to-earnings (PE) ratio, meaning they are cheaper to buy
than stocks with a higher PE.
Value stocks may be growth or income stocks, and their low PE ratio may
reflect the fact that they have fallen out of favor with investors for some
reason.
Negative publicity relating to unsatisfactory earnings reports or legal
problems are indicators of a value stock as the market will negatively view
the company’s long-term prospects.
A value stock may need some time to emerge from its undervalued
position. The risk of investing in a value stock is that this emergence may
never materialize.
People buy value stocks in the hope that the market has overreacted and
that the stock’s price will rebound.
Blue-chip stocks
A blue-chip stock is a huge company with an excellent reputation.
These are typically large, well-established and financially sound companies
that have operated for many years and that have dependable earnings,
often paying dividends to investors.
The companies that issue blue-chip stocks are highly esteemed in the
stock exchange market and tend to have a stable financial record and
credibility.
Blue-chip companies are those large companies that have reached
their maximum growth potential. This influences the Blue-chip shares who
undergo slow but steady growth over time.
Cyclical stocks
Cyclical stocks are those whose fortunes swing as per the business
cycle of an economy.
 A cyclical stock typically moves up or down depending on the upward or
downward movement in the economy.
These stocks are usually traded heavily as investors try to buy them at the
low point of a business cycle and sell at the high point of the same cycle.
Shares of car manufacturers, luxury goods makers, clothing stores, airlines
and hotels can be termed as cyclical in nature, as these companies see a
surge in sales when the economy is booming and are also the first to feel
the pain when the economy slows down.
When the economy slows, businesses run down inventory, put off
expansions, and delay purchases. Cyclical stocks such as steel
manufacturing and sales suffer when business slows down.
Defensive stocks
Defensive stocks are based on underlying assets which tend to be less
prone to economic and credit cycles than others.
Because of this, they are generally invested in when traders see an
economic slowdown approaching and want to hedge their portfolios.
Perhaps the most common defensive stocks are based on utilities.
Whether times are good or bad, people still consume water, gas and
electricity.
Therefore if an economy appears to be heading into recession, investors
will look to utilities to guard their portfolios against major losses.
Another example are companies, also known as ‘big pharmas’, which
produce over-the-counter drugs and medicines. They also invest heavily in
the research and development of healthcare products.
Speculative stocks
A stock in a new, small, or otherwise obscure company with a high
likelihood of failure but a small possibility of experiencing an extraordinary
return.
Many IPOs, especially in small companies, are considered speculative
stocks.
A speculative stock is a higher-risk, more aggressive stock with uncertain
prospects.
Speculative stocks may offer significant returns to investors—but they will
also have risk to match. 
These industries have a high potential for dramatic successes or failures.
For example, a newly emerging oil company may locate a highly profitable
source of oil, but may also fail to build any successful wells.
How to Make Money in the Stock Market
There are basically two ways you can make your money grow in the stock
market – either through capital appreciation or through receiving dividends.
Capital appreciation (or capital gain) means an increase in the market
price of a stock. This is where the old popular rule “buy low, sell high”
originates from. You buy something at a low price and sell it at  a higher
price, the difference of which becomes your gross profit.
When you sell an asset its capital appreciation can be calculated using the
following formula:
Sale Price – Purchase Price = Capital Appreciation *
* This formula assumes that the sale price is higher than the purchase
price. If an asset is sold for less than an investor originally paid then a
capital loss is incurred.
Example:
Kim buys 10 shares of a company for P100.00 per share. Six months later
the price per share has increased to P300.00. Kim’s investment has
increased in value from P1,000.00 to P3,000.00. The capital appreciation of
the investment is P$2,000.00.
Example:
Your cost basis in a stock investment is P10,000.00 and your investment is
currently worth P11,000.00, your capital appreciation is P1,000.00.
Dividing by your cost basis – P1,000.00 / P10,000.00 and - multiplying by
100 shows that your percentage of capital appreciation is 10%.
 
The second way of making money is through receiving dividends. This
represents part of the company earnings that is not going to be
reinvested for future business plans and is instead divided into  its
shareholders. Dividends are given in the form of  cash or stocks.
Operation of the Philippine Stock Exchange
Fundamentally, the business of the PSE is to attract and process order
flow — the flow of customer orders to buy and sell stocks. Customers  of
the PSE are the millions of individual investors and tens of thousands of
institutional investors who place their orders to buy and sell PSE-listed
stock shares with member-firm brokerage operations.
Special Order Types
Many orders are transmitted to the PSE floor.
Market Order
Market order is an order to buy or sell a security immediately.
This type of order guarantees that the order will be executed, but does not
guarantee the execution price.
A market order generally will execute at or near the current bid (for a sell
order) or ask (for a buy order) price.
It is important for investors to remember that the last-traded price is not
necessarily the price at which a market order will be executed.
Limit Order
Limit order is an order to buy or sell a security at a specific price or better.
A buy limit order can only be executed at the limit price or lower, and a sell
limit order can only be executed at the limit price or higher.
Example: An investor wants to purchase shares of BDO stock for no more
than P40.00. The investor could submit a limit order for this amount and
this order will only execute if the price of BDO stock is P40.00 or lower.
Stop Order
A stop order, also referred to as a stop-loss order is an order to buy or sell
a stock once the price of the stock reaches the specified price, known as
the stop price.
Buy Stop Order
A buy stop order is entered at a stop price above the current market price.
Investors generally use a buy stop order to limit a loss or protect a profit on
a stock that they have sold short.
 A sell stop order is entered at a stop price below the current market price.
Investors generally use a sell stop order to limit a loss or protect a profit on
a stock they own.
Types of Brokerage Accounts
A cash account is a type of brokerage account in which the investor must
pay the full amount for securities purchased.
In a cash account, you are not allowed to borrow funds from your broker to
pay for transactions in the account.
A margin account is a type of brokerage account in which your brokerage
firm can lend you money to buy securities, with the securities in your
portfolio serving as collateral for the loan.
As with any other loan, you will incur interest costs when you buy securities
on margin.
Stock Purchases and Sales: Long and Short
Having a “long” position in a security means that you own the security.
Investors maintain “long” security positions in the expectation that the stock
will rise in value in the future.
A "short" position is generally the sale of a stock you do not own.
Investors who sell short believe the price of the stock will decrease in
value.
If the price drops, you can buy the stock at the lower price and make a
profit.
If the price of the stock rises and you buy it back later at the higher price,
you will incur a loss.
Short selling is for the experienced investor.