A stock exchange, securities exchange or bourse, is a facility where stock brokers and traders can buy and sell securities, such as shares of stock and bonds and other financial instruments. Stock exchanges may also provide for facilities the issue and redemption of such securities and instruments and capital events including the payment of income and dividends. Securities traded on a stock exchange include stock issued by listed companies, unit trusts, derivatives, pooled investment products and bonds. Stock exchanges often function as "continuous auction" markets with buyers and sellers consummating transactions at a central location such as the floor of the exchange. Many stock exchanges today use electronic trading, in place of the traditional floor trading.
To be able to trade a security on a certain stock exchange, the security must be listed there. Usually, there is a central location at least for record keeping, but trade is increasingly less linked to a physical place, as modern markets use electronic networks, which give them advantages of increased speed and reduced cost of transactions. Trade on an exchange is restricted to brokers who are members of the exchange. In recent years, various other trading venues, such as electronic communication networks, alternative trading systems and "dark pools" have taken much of the trading activity away from traditional stock exchanges.
Initial public offerings of stocks and bonds to investors are done in the primary market and subsequent trading is done in the secondary market. A stock exchange is often the most important component of a stock market. Supply and demand in stock markets are driven by various factors that, as in all free markets, affect the price of stocks.
There is usually no obligation for stock to be issued through the stock exchange itself, nor must stock be subsequently traded on an exchange. Such trading may be off exchange or over-the-counter. This is the usual way that derivatives and bonds are traded. Increasingly, stock exchanges are part of a global securities market. Stock exchanges also serve an economic function in providing liquidity to shareholders in providing an efficient means of disposing of shares.
The Philippine Stock Exchange (PSE) is the stock exchange of the Republic of the Philippines.
Stocks offer investors the greatest potential for growth (capital appreciation) over the long haul. Investors willing to stick with stocks over long periods of time generally have been rewarded with strong, positive returns.
But stock prices move down as well as up. There’s no guarantee that the company whose stock you hold will grow and do well, so you can lose money you invest in stocks.
If a company goes bankrupt and its assets are liquidated, common stockholders are the last in line to share in the proceeds. The company’s bondholders will be paid first, then holders of preferred stock. If you are a common stockholder, you get whatever is left, which may be nothing.
Even when companies aren’t in danger of failing, their stock price may fluctuate up or down. Large company stocks as a group, for example, have lost money on average about one out of every three years. If you have to sell shares on a day when the stock price is below the price you paid for the shares, you will lose money on the sale.
Market fluctuations can be unnerving to some investors. A stock’s price can be affected by factors inside the company, such as a faulty product, or by events the company has no control over, such as political or market events.
Stocks usually are one part of an investor’s holdings. If you are young and saving for a long-term goal such as retirement, you may want to hold more stocks than bonds. Investors nearing or in retirement may want to hold more bonds than stocks.
The risks of stock holdings can be offset in part by investing in a number of different stocks. Investing in other kinds of assets that are not stocks, such as bonds, is another way to offset some of the risks of owning stocks.
Being a shareholder entitles the investor to receive dividends and to participate in various corporate events declared by the company. In addition, the investor may receive company reports, may participate in stockholders’ meetings, and may cast their votes in selecting the Board of Directors and in addressing certain business decisions.
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Inflation is defined as the increase in general price levels of goods and services in an economy over a period of time, which reduces the purchasing power of an investor. Inflation does not greatly affect stocks in contrast with other financial instruments such as bonds and bank deposits, because companies have the ability to adjust prices with the rate of inflation.
Inflation is not your friend when you’re trying to save for a major outlay, like buying a house or financing a comfortable retirement. Fear of stock market risk may prompt you to stash your money under your mattress or in a savings account, but this approach to investing doesn’t consider inflation and over time, may carry more risk to your nest egg than stock market volatility.
Some level of inflation is a fact of life. Consider that the average inflation rate in the Philippines hovers at about 4% in the past 18 years. Then think about how this could eat into your purchasing power and objectives if most of your money is sitting in a savings account. It would have to earn at least 4% just to keep up with inflation. Although there’s no guarantee of how your investments will pan out, a mixed bag of well-considered stocks has the potential to beat inflation and help keep you on track for the long haul.
Stocks are considered liquid assets, because you can readily sell your shares in the stock market if you need money for emergency purposes, and you can obtain your funds with your stockbroker within a week. You may also withdraw credited dividends in your account to fund your needs.
Investors may maximize financial opportunities in investing on stocks as purchasing stocks and profits derived from stock investing is non-taxable, and the only tax incurred by the investor is the sales tax which is only fifty (50) basis points of the gross amount of the sale transaction.
