In a nutshell: A stock exchange makes it possible for companies to raise capital (money) to expand and develop by selling shares. It is a safe and convenient platform for you to invest and grow your money and participate in the economy.
A stock exchange, also called a stock market, is like any other market except that, instead of selling vegetables and smileys, shares (a small piece) in companies are sold. The Johannesburg Stock Exchange (JSE) is the largest exchange in Africa.
Why would a company sell small pieces of itself? Companies can access large amounts of capital by listing on a stock exchange and issuing shares to investors (like you).
You can buy shares and “own” a small part of the company – you then become a shareholder. Shareholders can also vote on certain company matters at the company’s annual general meeting.
How can I make money on the stock exchange?
If the company performs well, the shareholders receive a percentage of the profit, called a dividend.
This dividend is paid into your bank account, or you can reinvest it.
If the share price increases, the value of your investment increases. You profit if you sell your shares at a higher price than you paid for them.
Nolwazi example…
Remember, you won’t get rich quickly by speculating on the stock exchange. Share prices fluctuate daily due to various factors. In general, real money is made over the long term as these fluctuations even out as an economy steadily grows.
How can I invest on the stock exchange?
You cannot buy shares directly from the stock exchange – you have to work through a broker or investing platform.
Online stockbrokers or investing platforms provide a user-friendly platform for young individuals to trade shares on their laptop or smartphone, and often have lower fees.
Several banks offer their own online trading platforms, allowing you to buy and sell shares directly. Most banking apps will have an online share-trading platform.
Full-service brokers provide a range of services, including investment advice, research, and trading assistance. They typically have dedicated brokers who can execute trades on your behalf. This option is suitable for individuals who prefer personalised guidance and are willing to pay higher fees for the additional services.
TIP: Fees can have a huge impact on your investment over time. Research and compare different brokers as they vary in terms of commission fees, transactions costs, monthly fees and the minimum deposit amount required.
You can invest indirectly on the stock exchange with a unit trust or exchange-traded fund (ETF). Both these vehicles act like a basket of shares, which is great for diversifying. In general, an ETF has lower fees because it tracks an index by following investment rules, while a unit trust is managed by a fund manager (a real person) who studies the market.
How much money do I need to start trading?
It can vary from R0 to R250 to open a trading account. No fixed minimum amount is required to start trading on the stock exchange. Most investors start with a few thousand rand and gradually increase their investments as they gain experience and confidence.
Usually the process works like this:
You register with a stockbroker and open a trading account.
Transfer money into the account.
Watch the news, listen to the radio, read newspapers, play golf and do what you have to do to stay on top of developments in the financial world.
Buy shares and watch them rise and fall for at least five years.
Do a practice run
Before you start trading, it is imperative that you understand how the market works and all the costs involved in trading. Search for a trading platform that offers a demo account or accounts for beginners where you can have a practice run as well as guidance before you invest your money.
The JSE hosts a virtual trading game every year. The game aims to teach South Africans of all ages about investing on the JSE. Participants learn about the fundamentals of investing and are encouraged to research and strategise around trading. There is also a separate game for high-school learners.
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