Stock trading, how investors make money?
Let me share my thoughts on how stock trading works for investors. For investors and those in the industry, stock market is a good game of money and risk as it deals a level of some strategy and know-how to make money. In here, the process is simple. Investors, through some mediums like internet facilities, newsprint, listed company’s homepages and the likes, simply choose among the listed shares in the stock market those whom it sees potential. Factors, such as companies objectives, financial flexibility, profitability, future programs and projects, current company news and issued and other circumstances are among hose normally inquired into. In acquiring these shares, the lower the acquisition price, the better.
Upon acquisition, investors will then monitor the movement of the price of such share in the stock market to determine whether or not it is worth holding more time or it better be sold outright. The main objective is to see to it that the selling price of such listed shares are moving positively in the stock market. This time, the higher the market, the better, as the yield or gain would be higher. Tight monitoring is not required but may be an advantage for closely monitoring the trend and movement of the shares and such market prices are determined for each and every trading day (trading day is normally on weekdays from think 9:15am to 1:00pm) . If the market of such share declines, it may matter much but may serve as a warning to forecast whether it will decline or will increase for the next few days. If it will increase then, better hold, but if it will decline in value, then, it may be sold outright. Specially so, if such decline will fall below the acquisition cost as a loss will be incurred upon disposition. Stock brokers and analysts may prove to be of great help for such purpose.
To illustrate, 1,000,000 listed A shares are bought at P1.00 per share. The following day, the market of such share becomes P1.5o per share, then the day after, it goes up to P2.00, while on the third day it falls to P1.4o. Because of the volume of the shares, a centavo movement of the market price is significant. It it will be sold at P1.50/share, then, it will gain half a million pesos (P1.50 less P1.00 and multiplied by 1,000,000 shares). Quite great, the investors earns a half million in 24 hours! At P2.00 selling price, it earns a million , while P400k at P1.4 per share. During the third day at P1.4 per share, if it forecasts that the share will recover the next trading days, then, it is advisable to hold, otherwise, it may opt to sell. Its margin of decline maybe at any desired level higher that P1.00 in order to make money. The trick is how to forecast prices and many lives on it as market analysts which mostly happens to be brokers at the same time.
Wow, great money, right! At the back of it, how is such earning being taxed. Under Section 127 of the Philippine Tax Code, the gain discussed above is subject to a percentage tax otherwise termed as “stock transaction tax” at the rate of 1/2 of 1% of the gross selling price or gross value in money of such shares sold, bartered,exchanged or otherwise disposed, except upon dealers of securities. At P1.5 per share above, the tax would be P7,500 (P1.5 times 1,000,000 shares times .005). Such tax applies every time the listed share changes hands. Nevertheless, investors may be required to pay commissions to their brokers. With the advent of RA No. 9648, no DST shall be due on these transactions. As compared to deposits in regular banks, this is quite better, even without the tax exemption as the income from bank deposits are normally taxed at 20% while stock transaction tax is 1/2 of 1% only.
Related Post:
a. DST exemption on listed shares, made permanent?
Tags: investors, make money, OPT, stock market, stock trading
