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How to Engage in Stock Trading
August 18, 2021 by Martin Luigi Lagustan
After investing in your business or your new RFO house and lot, you’re probably on the lookout for more ways to expand your options in terms of making more money. If you’re reading this, then you’re probably considering trading stocks.
Stock trading is one of the most popular investment ventures that more and more Filipinos have started to engage in. In this article, we’ll show you how you can earn money from stocks, how much you need to start investing, and how to invest in the stock market.
How Do You Earn Money in the Stocks Market?
As you already know, there is a lot of profit potential when you invest in stocks. So, just to give you an idea, there are two ways you can earn money from stock investing: Capital appreciation and dividends.
Capital appreciation is when the price of the stock you bought increases. Each stock has a price, and the difference between the initial value you paid for the stock and the current selling price of the investment. If you buy a stock for Php500 and the price rises to Php700 in a week and you decide to sell, you earn Php200 in capital appreciation.
Meanwhile, dividends are rewards that a corporation or company gives to their shareholders. It could be in cash or additional shares of stocks, either way, these are usually a part of the profit that the company gained from the money you invested. When you hold stocks within the minimum number of days before the ex-dividend date, you’re entitled to dividends.
How Much Money Do I Need to Invest in Stocks?
There is no one-size-fits-all value in the amount of money you need to be able to start investing. Plus, there’s no set minimum to get started in stock investing. So, you don’t need a huge capital. In fact, according to the 2020 PSE Stock Market Investor Profile report, 61.2% of investors earn less than Php 500,000 per annum and 80% are locally employed.
Hence, it all comes down to the stock you want to invest in, or the recommendations your stockbroker suggests. As long as you have money to purchase stocks and pay trading fees, you’ll be fine. Although, it’s great if you invest a percentage of your monthly income or profit.
How to Invest in Stocks?
1. Get Educated about the Stock Market Investing
Learning the ins and outs of the stock market and investing in it should be the first thing on your list. So, it’s best if you know someone who already knows a lot about investing in the stock market. Otherwise, there are a lot of seminars and classes you can attend to educate yourself more about the industry.
Philstocks.ph offers seminars that can help you know more about the basics of the stock market and some strategies you can apply. You can check out their website for more information on how to register in one of their webinars.
If you already know some of the basics and wish to expand your knowledge, Ateneo De Manila University offers a PSE Securities Certification Course. It is a 124-hour program that will help you more on investment portfolio management, market theories, market dynamics, regulations, valuation technique and analysis, and even ethics. Learn more about the program here.
2. Plan Your Investing Strategy
Of course, just like any investment, you should always have a plan on how you will execute your new venture. Your strategy will determine your spending habits, goals, and how long you want to invest in a certain stock.
First, take some notes on your current financial situation. What are the total cost of your monthly expenses, debts, and other non-negotiable or fixed payments? How much can you currently afford to invest in stocks, both for capital and on a recurring basis?
Next, determine your goals for investing, both long-term and short-term. Are you intending to invest to have money for retirement? Are you looking to make big purchases, like buying an RFO house and lot or a new car in the future? Are you investing to have money for your child or children’s education?
Now that you know how much you can spend and your goals for investing, you then need to know your risk tolerance. This is usually defined by factors like your age, how long you have until you retire, and your income or business profit. Of course, the older you are, the less risk you should take. You wouldn’t want to be near your retirement age and suddenly invest all your money.
However, higher stock investment risk means higher returns. Meanwhile, lower risk means you won’t immediately feel the gains of your investment.
For beginners, one of the most recommended strategies you can try is cost averaging. It involves investing a fixed amount in companies at regular intervals, be it monthly, quarterly, semi-annual, or annual. This is best for long-term goals, as it’s done for long periods, ranging between five to ten years. Once you reach your target date or ROI, only then will you sell your shares.
One of the best stocks you can invest in if you have long-term goals is Blue Chip stocks. These are corporations that are stable and are usually one of the top-performing businesses in the country. Investing in blue chips have less risk, but has higher liquidity and is generally easier to trade.
For quick gains, you can start buying stocks after opening a trading account and buy stocks you believe in most. This requires a lot of technical analysis and you need to have real-time updates on the stock prices.
There are other investment strategies you can learn, like value investing, growth investing, and momentum investing. All of these strategies can be helpful to you, as long as you align your goals with them and learn how to properly execute your strategies.
3. Get Someone to Assist you such as a Stockbroker (Optional)
Before online trading platforms became a thing, people needed to call or email their stockbroker to make their investments for them. Stockbrokers are individuals or companies that buy and sell stock orders on behalf of investors. These people are accredited by the Philippine Stock Exchange and Securities and Exchange Commission.
In modern investing, stockbrokers help you earn significant returns as they are helpful if you want someone to help you identify and invest in the most profitable companies. They can also help you determine the best strategies, keep you updated in financial records, and in portfolio growth and maintenance.
However, since the rise of online trading platforms, stockbrokers and brokerage houses mainly provide their services to corporate and business investors. Most big investors prefer a person to perform their trading transactions than an automated system. Although, that doesn’t mean you can’t approach and hire a stockbroker to help you as you navigate your way through the market.
Additionally, stockbrokers can also help you with the following:
- Keep you away from unsuccessful trades
- Guidance on the rules and regulations of financial investments
- Rapid market changes
- Buy and sell stocks in both local and international markets
- Working your trades for favorable prices
- Adapt to positive and negative changes in the market
4. Open an Online Trading Account
Now, unlike having a stockbroker, using an online trading platform gives you access to the Philippine Stock Exchange and allows you to buy and sell stocks on your own anytime and anywhere, even overseas.
Opening a trading account is just like opening a regular bank account. There will be requirements to validate and verify your identity and your financial capacity, although documents will vary on the trading platform you want to use.
There are a lot of online stock brokers you can choose from, some of the best ones include First Metro Securities Brokerage Corporation, AB Capital Securities, Inc., and COL Financial Group Inc..
First Metro Securities Brokerage Corporation is a stock brokerage company and investment banking arm of the Metrobank Group. They offer numerous features, including dollar investing, retail treasury bonds, and conditional orders. You can open an account online, even with no starting capital. They also offer a free seven-day trial so you can have a feel for their platform.
AB Capital Securities, Inc. is one of the top brokerage firms in the Philippines and is one of the pioneer companies in the online trading industry. They offer reliable stock reports and provide smart recommendations, which are great for beginner investors. After depositing a starting capital of Php 10,000, you can start trading right away. You can try their free trial and take a peek at their trading platform.
COL Financial Group is one of the most popular stock brokerage platforms. They offer an EIP (Easy Investment Program) which lets you choose any of their expertly recommended stocks and invest in periodic intervals. The starting capital for starter accounts is Php 1,000 only, and you can also enjoy their seven-day free trial.
5. Fund Your Online Trading Account
Once your account has been approved, your chosen online trading platform will provide details on how you can fund your account. More often than not, you should have a grace period to fund your account for activation.
Depending on the platform you chose, you can fund your trading account through mobile bank transfer, direct bank deposits, GCash, overseas remittance, and other payment methods.
6. Buy Your First Stock
Now that you have all the necessary equipment to start your new investment venture. Everything should be readily available for you in your chosen trading account. It’s best to start getting a feel for the platform first and just buy stocks on a regular schedule with the same amount. If you choose to work with a stockbroker, they should discuss the potential of the stock with you and wait for your confirmation before proceeding with the purchase.
If you see reliable news about a potentially great investment in the market but you don’t have internet connection at that specific moment, you can contact the customer service of your online broker to place an order.
Keep in mind that trading days in the Philippine Stock Exchange are only between Mondays to Fridays, from 9:30 AM to 3:30 PM. You can’t place orders on holidays and during breaks, which are around 12 PM to 1:30 PM. In 24 to 48 hours after placing your order, you should receive a notification email that confirms your purchase, complete with details of your transaction.
7. Monitoring and Tracking of the Investments
Stock investments may be a form of passive income, but it still requires a lot of active processes, like tracking and monitoring progress. Your online trading broker should have all the necessary information you need, but if you want to be on top of everything, there are a lot of ways you can track and monitor your investments.
One way to do so is to set up a portfolio tracker. There are a lot of free websites that let you customize trackers, like Yahoo Finance and Google Finance. Both offer all the basic tools you need to input the number of shares you bought and their respective prices. These trackers can also help by providing links to company information for stocks, including news and historical share prices.
Another feature you should look out for is automatic alerts that will send you emails or text messages if any of your stocks drop below a certain point. You should also check market trends at least once a week to get a rundown of the current updates that may influence your portfolio.
Moreover, don’t hesitate to read the annual reports of the companies you want to invest in. This will give you a glimpse of what may be in store in the next year, so you can adjust your strategies based on the results.
An old-school, but still quite effective tool you can use is a trading journal. This could be either online, on your computer, or something as uncomplicated as writing down in a notebook. Getting into the habit of writing a trading journal can help you as you grow more and make complicated trades in the future.
For each trade you make, write down the following:
- Name of the stock
- Date and time you made the transaction
- A ticker symbol or stock symbol of the stock
- Number of shares you purchased and why you chose that amount
- Is it a long- or short-term investment
- Did you stop investing in the trade
- Why did you close the trade
- Date and time you left the trade
- Percentage of gains or losses you made from the trade
- What could you have done differently
These may all seem like extra work for you, but the whole purpose of writing a trading journal is to help you become a better trader. You can learn something from both of your gains and losses, so it’s good practice to keep track of them so you can perform better in your next investment, be it in the stock market or your next RFO house and lot.
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