What is a share?
A share is simply described as a divided-up unit of the total value of a company. Whatever the company is worth divided by the number of the value you get, is the worth of each share; the shares usually go up and down in value for numerous reasons.
Economic analyst Professor XN Iraki says shares help companies spread ownership.
“We have companies that grow very big, and one of the ways to make them more professionally manageable, is to float them in the stock exchange…then we have ownership spread out.”
Companies issue shares with the intention of raising money; investors, who in this case you, buy shares with the hope that the company will do well and give them returns in the long run.
Can you make or lose money after investing in shares?
The answer is Yes!
There are two ways you can make money from investing in shares, this includes: if the shares increase in value, which means you reap a profit when you sell them, and also if they pay dividends-which are said to be more like interest on a savings account.
When it comes to the company whose shares you have bought, if it makes a profit, it can usually choose to give some of it back to you on a regular basis or as a one-off. Depending on the company, part of the first amount paid in dividends is often expected to be tax-free, though if it exceeds a certain amount, some companies tax it at a selected percentage, that varies across basic-rate taxpayers, higher-rate taxpayers and additional-rate taxpayers.
Some companies can usually decide not to pay dividends.
How do I buy or sell shares?
Often, shares are seen to be listed and traded on exchanges, licensed venues where buyers and sellers meet, often with the assistance of a broker or other intermediary. The intermediaries in this case are usually members of the exchange who use their access to buy and sell shares on your behalf.
Major exchanges in Africa include but not limited to: Nairobi Securities Exchange in Kenya, Uganda Securities Exchange in Uganda, Dare es Salaam Stock Exchange in Tanzania, among others. In the United States we have the New York Stock Exchange (NYSE) and the Nasdaq market.
So, when it comes to trading shares, you need to use a broker to place your orders on an exchange. A stockbroker is usually a firm/financial professional who buys and sells stocks at the direction of clients; a broker acts as an intermediary between an investor and a securities exchange and getting to know as much about you helps them develop a long-term financial plan.
There are different types of brokers:
Online/ discount brokers that buy and sell orders online: This type of broker is an automated process that operates on reduced fees and offers basic execution services for investors who do their own analysis and research.
It is said that most online brokers offer commission-free trading along with free tools and screeners, making it easier to trade stocks on your own.
There is also what is called full-service brokers that are more expensive than discount brokers; normally they are professional human investment advisors who remain by your side and are considered to be worth the additional costs. This type of broker, also called a traditional stockbroker, while may be more expensive, is seen to provide expert investment research and advice, in addition to comprehensive financial planning.
Those who may not have the money or time to hire a full-service broker can opt for a roboadvisor. These are described as algorithmic investment platforms that you can manage through an app or website for a fraction of the cost of a traditional financial advisor.
Your choice of broker should be based on your individual needs. However, an important thing to note is that some publicly traded companies offer a direct stock purchase plan (DSPP), where you can buy shares directly; instead of using a broker, the company’s transfer agent is said to manage the transaction.
Where to Buy Shares?
You must be at least 18 years old to open a brokerage account and trade shares, however in most countries for someone younger than 18, a parent can set up a custodial account on their behalf.
As long as a company is listed on a stock exchange, you can buy and sell its shares. On the sock exchange, you get a list of companies including the big and seemingly small players. There is also the Alternative Investment Market (AIM) which lists smaller developing companies that are not known much.
One of the easiest ways, to getting a trade done is by opening and funding an online account and placing a market order. However, this is said to have great risks, and as a result you are advised to do your own research before deciding what type of order to place and all other details around it.
How do I buy shares?
The easiest and most affordable way to buy shares is said to be online, from platforms that allow you to buy shares from listed companies. There are also various charges one will need to pay when buying, holding and selling shares.
So, once you have an account, you move on to search for the share you want to buy and choose a quantity or value. You have to make sure that you have enough money in your dealing account to cover all dealing charges. You then move on to accept the quote it generates and the shares will then show in your account with your chosen platform, your account and the shares in it are often known as your portfolio.
It is important to note that prices change all the time; the price is determined by supply and demand from prospective buyers and sellers at any particular time, high demand drives up the cost, while low demand takes it down.
How to Trade shares?
Selling shares is said to be just as easy as buying them. When you choose to sell, you can choose to sell in number of shares, for example, sell 200 or all shares, or you can sell by value-for instance sell Ksh. 400 worth of shares.
“If you are buying for short term, then you look for shares that are most likely to appreciate in the next few months, or few days. If you to invest long-term, to be getting streams of income dividends for the next 10, 20 years, then you buy shares from companies that are stable.” Says Prof. XN Iraki.
Once you have placed the deal, you are shown a quoted price for the sale of the shares, which is said to vary between getting the quote and the sell order being carried out.
“One of the best times to buy shares, is when the economy is not doing very well, cause when the economy starts recovering the price always goes up.” Says Prof. XN Iraki.
The price quote also shows a set of information about the stock’s price and activity, which indicate the last price at which the shares traded, as well as a bid and an offer. The bid is said to be highest price at which somebody in the market will buy a share-making it the best price at which you can sell to them, whereas the offer, or ask, is the lowest price at which somebody in the market is willing to sell and thus is the best price at which you can buy from them.
The difference between the bid and offer prices is known as the spread. A narrower spread typically indicates that the market for the stock is quite active and liquid, and a wider spread on the other hand indicates the opposite. Upon considering the price quote, you may go ahead to place your order.
Experts within the stock exchange market say that it usually doesn’t pay to try and time the market, basically trying to buy shares at their lowest and selling them at their peak. It is advised that instead, you ask yourself important questions like will the company continue to grow? and Will it continue to pay dividends?