Thursday, May 1, 2014

How to choose a stockbroker

In choosing a stockbroker, here are some tips which could guide you for a wise stock investment:

1.   The stock brokerage must be a legitimate member of the Philippine Stock Exchange (PSE).
2.   Find a stockbroker you can trust.
3.   Test your trust or relationship with your broker by monitoring some of your earlier trades. For example, if during the day, the buyer price was P10, and the seller price was P10.25, and never went up to P11, but the broker bought the stock at P11, then you know there was a discrepancy somewhere. Anyway, all trades are monitored by the PSE, so everything is on record.
4.   Get a stockbroker who is knowledgeable of, and experienced in the market.
5.   Get a stockbroker who gives you good service.
6.   Do not give your entire portfolio to your stockbroker.
7.   Choose a stockbroker whose investment “style” and philosophy coincides with yours. If a stockbroker is leaning towards the speculative side and is into short-term gain, he would not the right choice for an investor who prefers medium-to-long term investments.

Today, most of us never see certificates of the companies we buy stock in. We see our stock purchases noted on monthly statements and we receive transaction slips that we purchased them. When the stock we bought is kept at the brokerage firm where we purchased it, the brokerage firm is said to be holding our stocks for us in street name, or as a book entry.

Suze Orman, a noted personal finance author, prefers to leave her stocks in street name for the following reasons:

  •      If she want to sell stock, even if she is on travel, all she has to do is make a simple phone call or place a trade online, and her wishes are carried out. If your brokerage firm does not hold your stock in street name, then you will have to physically deliver the actual certificates of the stock you want to sell and that takes time and energy.

  •    In addition to getting a monthly statement (which show the value of the stocks), and if you happen to own stocks that pay a dividend, then that dividend can be paid immediately into your account.

  •    If you lose a stock certificate, you can replace it by contacting the transfer agent.

There are terms used in the stock market which could inform investors, such as:

1.   Market Order – an instruction to your broker to buy or sell your stock at the best available price.
2.   Bid – is the highest price a prospective buyer of a stock is willing to pay at a particular time for a share of that stock.
3.   Ask – the price a potential seller is willing to sell a security. Together, the bid and the ask price are a quotation. The difference between them is known as the spread.
4.   Block trade – An order for a minimum of P5 million worth of a specific stock.
5.   Dividends – A share of the profits of a corporation which is paid to the stockholders out of surplus, in proportion to the number of shares owned by the stockholder. They are paid either in cash or in the form of additional stocks.
6.   Insider trading – Illegal buying or selling of securities on the basis of information that is generally unavailable to the public.
7.   Limit order – is an order to sell or buy a specific number of shares of stock, with one important condition: You will buy or sell only if you can get the exact price that you want or better on those shares. In other words, you are limiting the amount of money that you will pay to buy that stock as well as you will accept to sell it.
8.   Over-the-counter market (OTC) – Stocks that are about to be listed, as in the case of Initial Public Offering (IPO), are sometimes bought and sold before listing in the stock exchange. This is also known as “grey” market.
9.   Value turnover – The total value of shares traded as calculated by multiplying the market price of a security by the total number of shares. On the other hand, volume turnover is the total number of shares traded during the day.
10.        Yield – The percentage return on your money. Also called “return.”
11.        Stop loss order – is a protective mechanism, used to keep you, from losing a predetermined amount of money on a particular stock. It is an instruction to your broker to sell your stock at market price once it has traded at a specified price known as the stop price. Let’s say that you bought stock at P9 a share, and now it’s trading at P29. You don’t want to sell the stock as it is going up, but you also don’t want to see it go back down to P9 a share. In this case, you may enter a stop loss order at P24. If the price drops down to P24, your stop loss order immediately becomes a market order. Remember, a stop loss order means that when you stock hits a particular price you want to sell. It does not say at what price you want to sell the stock. For this, you need a stop sell limit order.
12.        Stop sell limit order – an order that says you want to sell your stock at an exact price or not at all.

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