The stock market is one of the oldest financial markets, after real estate investment. The process of buying and selling shares works in a similar fashion as any other financial instrument. For a trade to take place, both buyer and seller must negotiate a price at which they want to exchange the share. Trading institutions known as stock exchanges are responsible for facilitating the trading of shares belonging to public listed companies.
A stock exchange is where all the shares of publicly traded companies are listed. For a company to be listed on the stock exchange like the Johannesburg stock exchange (JSE), the company must have undergone what is known as an initial public offering (IPO). The moment a company has rolled out its shares, individuals and institutions can buy or trade the shares for a profit.
So, in this article, we will explore how the market works, factors that move the stock price, and wrap up with how to buy stocks. This article is not an investment advice, but purely educational content for individual investors.
But before we dive deeper, let's quickly define what a share is.
What is a share?
A share is a fraction of a company's value. Assuming, a company in the medical industry is worth $100 million, if the company's shares is up to 50 million, it literally means each share of the company is worth $2. The essence of issuing shares in the first place is to raise funds from members of the public to explain a business idea or concept.
So many companies issue shares to offer more value to their shareholders and customers. For individual investors, they only invest their hard-earned capital where they believe the company will grow.
How The Stock Market Works
The stock market is like every other financial market. The logic behind the market is that if you believe a company will grow or the company will perform better in future, you buy the company's shares to also co-own the company with the founders or directors.
To make a profit from your stock investment, you would have to sell stocks at a price higher than what you bought it. Conversely, you may sell your shares or limit any potential losses in the future if you believe that the company will experience difficulties.
Factors That Move Share Prices
Before a company declares an initial public offering, the company shares usually have a set price range. This price range is usually determined by the organizers of the initial public offering, and is usually set according to the interest in the listing and the company's performance, including its products, existing revenue, and popularity.
At the end of the initial public offering, fluctuations in the share price may be a result of the supply and demand of the stock. For instance, if the supply of the stock is higher than the demand, it means the share price will fall. In the same vein, if the demand of the stock is higher than the supply, the price of the share is likely to rise.
However, there is usually a limited supply of shares in every publicly listed company. So the decision to issue more shares or to even buy back the shares issued during the public offering rests on the shoulders of the board of directors of the company. Aside from the demand and supply that we have earlier mentioned, there are a couple of factors that can make the specific price to fluctuate. These factors include:
1. Earnings Reports
The earning reports of a company can either affect the share price of a company positively or negatively. Companies usually release these reports once every financial year. Investors, and indeed, traders use these reports (profits and earnings per share and revenue) as part of their fundamental analysis.
2. Macroeconomic Data
Truth be told; the performance of an economy in the country a company operates affects the capital growth of such a company. Data like the gross domestic product (GDP) of a country and the sales performance of that company can significantly affect the prices of the company's shares. In essence, strong data means an increase in the share price of the company, while weak data means the share price will fall.
3. Interest Rates
The stock market usually experiences increased activity if the interest rates are low. This is because most investors turn to their shares to achieve greater earnings and returns than they would have done if they had saved their money in the bank account.
4. Market Sentiment
The prices of shares are not always dependent on fundamental analysis. Market sentiments or how investors view a certain stock can cause the demand or supply of the stock to fluctuate. This is exactly how the formation of speculative bubbles occurs.
How to Buy Shares like a pro
The process of buying shares from your preferred company is not as difficult as an inexperienced investor and other investors would imagine. Find below the step-by-step process or buying shares from any public listed companies of your choice.
Step 1: Choose An Online Broker
The first step in your share buying journey is to choose reputable online brokers. With the number of brokers on the market, it can be overwhelming for a new trader like you to choose a broker that suits your trading style and preferences. There are a few things you should look out for before deciding on a broker to buy shares with. First, you should consider the regulation status of the broker.
A regulated broker means that your funds are in safe hands. It also means that the broker uses cutting-edge security measures to protect seasoned investors from the prying eyes of fraudsters. A regulated broker is also a broker with a simplified method of depositing or withdrawing your earnings. Then lastly, a reputable broker is a broker with a track record of success and performance since inception. Plus, most online brokers have a trading platform where trading is facilitated. You also need to look out for this.
Step 2: Open An Investment Account
After identifying a broker that you want to work with, the next step is to open an investment account with the broker. Go to the broker's homepage and complete the retail investor accounts opening form to get started. Ensure you upload all the necessary documents required by the broker in compliance with the KYC protocols.
Step 3: Pick Your Stocks/Shares
Once you are done opening a brokerage account, the next step is to research or pick your preferred stocks. Whether you want to trade the stocks of Amazon, Facebook, Zoom or Netflix, this is the stage you've got to research the company you want to buy into.
As you conduct your research, market volatility and trends, as well as the complexity of market data may want to overwhelm you, but endeavor to stay ahead of your games. You can use tools to analyze the market and the performance of your preferred companies.
Step 4: Deploy Your Investing Strategies
The next step is to deploy your trading strategy. In the financial market, investors rely on different strategies to make money off the market. If you are buying shares, your strategy may be a long-term or short-term approach.
If you are buying shares for a short-term, your best strategy will be to trade as a scalper. If you want to buy shares for a long-term, you can decide to be a swing Trader or position Trader.
Step 5: Monitor The Market
This is the last stage of the process. In this stage, your duty will be to monitor the market and observe market trends and price changes as the day goes by. To make a profit, once the price of the shares that you bought goes up either due to market sentiment, economic performance, or interest rates, then you can sell the shares to make a profit.
If you do not have the time to monitor the market yourself, you can employ technical tools to keep watch of the market on a regular basis.
Contract for difference, CFD, is a trading strategy that allows traders to speculate on the price differential of an asset without owning the underlying asset. In essence, instead of owning the shares of a company, CFD allows you to speculate on the company's shares and make money in the process. CFD also enables traders to enjoy tight spreads and less risk before placing buy market orders.
As a retail trader, you can participate in CFD trading with your broker. You can also go long if you believe the price of a stick will increase. Similarly, you can practice short selling on a share if you believe the price of the share will nosedive.
Understand the Risks and Charges
The stock market may not be as risky as the cryptocurrency and the forex market, but certainly it has its own drawbacks. For instance, when trading CFDs, your broker will offer you what is called leverage.
Leverage gives you the opportunity to trade a higher price amount for just a fraction of the amount in your brokerage account. The benefit of trading leverage is that it magnifies your profit, and you can easily achieve your financial projection in the shortest possible time.
However, leverage also magnifies your loss. If in the event that the market goes south and you use leverage to trade, what this means is that you will not only lose your capital, you will also have to deposit more funds into your brokerage account to make up for the loan your broker offered as leverage.
There are some tools developed by expert traders to assist newbies or beginners manage the inherent risks on the shares market, one of these tools includes stop-loss. Stop-loss enables you to clearly define your exit point when a trade tends to move against you. You may also use technical trading tools or indicators to insulate yourself from the share market risks. As a matter of fact, if you have a nine-to-five job that may not allow you to concentrate as a full-time stock trader, you can use technical indicators to manage your trade on auto-pilot.
As for the charges and fees, stockbrokers make money through the commission they charge traders for using their platform. Therefore, pick a broker whose exchange commission is affordable and in line with the industry standard. The truth is that the commission or fees charged by brokers can take a huge dent on your profit. Your best bet is not to trade with a broker that places all manners of sundry charges on their traders.
Why Buy/Sell Shares with Primefin.com
If you are new to share trading, you need a reputable stockbroker to begin your share trading career. One of the top stockbrokers in South Africa at the moment is PrimeFin. PrimeFin offers a wide range of asset classes including stocks, forex, cryptocurrency and commodities via CFD.
This authorized financial services provider also has a robust customer service team that will walk you through every step of the way, so that you can start your share trading career the best way possible.
Below are other reasons why you should consider buying or selling your shares with this broker:
Regulated Broker: Our trading platform is regulated in South Africa and every other jurisdiction it is legally permitted to operate. In order to guarantee the safety and security of our traders' funds, we open a segregated account to keep traders deposit safe.
Maximum Security: When it comes to the issue of security, we place emphasis on our traders' security and comfort. In addition to deploying cutting-edge technology measures to protect our traders' accounts from the prying eyes of fraudsters and cyberattackers, using encryption technology to secure our trading platform. PrimeFin also supports two factor authentications so that a third-party cannot easily access your account without your authorization or approval.
Education Resources: Stock education is the hallmark of PrimeFin; we take the issue of education very seriously, and that's why we have educational materials or resources that newbies can use for learning.
A Wide Range of Trading Assets: PrimeFin offers over 250 financial instruments like commodities, exchange-traded funds, pure metal, oil, and cryptocurrency.
Ease Of Withdrawal/Deposit: We support a wide range of payment methods for deposits and withdrawals. When you are ready to make a withdrawal, simply fill the withdrawal form on your dashboard. You will see your funds instantly credited through your preferred payment method.
How to Buy Shares with Primefin.com
Buying shares does not have to be a tedious process. On the Primefin.com website, our process is very simple and straightforward. Simply follow the instruction below:
Launch our official website via your laptop or any trading device.
Navigate to where you will find the account creation button to create a free account.
Click the retail investor accounts creation button and complete the form.
Upload all the required documents for KYC processes.
PrimeFin will send you a mail to confirm the account creation.
Navigate to your dashboard and deposit funds from your bank account to your trading account. This is the account you will start to trade shares with.
Pick a share you want to buy or sell and then look for the share in the market.
Place a buy order and monitor your trade.
Buying shares in a reputable company is an interesting and amazing experience that newbies will enjoy as soon as they hit the stock market. However, keep in mind that the stock market has its own inherent risks, which we have already discussed in the article. If you do not have any risk management measures on ground, you may purchase a company share and lose all of your trading capital to market forces.
Before you make your first trade ensure that you have practice and perfect your stock trading strategy using a demo account. Thankfully, the account that we have on our trading platform is tailored with newbies in mind. The demo account is also user-friendly, so you can use it as often as you like to perfect your trading skills and also learn the nitty-gritty of the stock market.
Beginners are fond of jumping onto the bandwagon of buying the shares of blue-chip individual companies from online brokers. While this might be a good practice, remember that a unit price of the share of a blue-chip company is huge; you don't want to take risks by starting the stock market with huge capital. Your best bet will be to start with a promising technology company especially now that countries are beginning to open up after the effects of the pandemic.
If you have any challenge navigating through our website or creating an account on our website or depositing your investing capital into your trading account, you can reach out to a customer support representative for immediate and prompt assistance with just a few clicks. Our customer service representative works around the clock to resolve any complaints whatsoever that new share buyers may have in the process of opening a new account and placing their first trade. Remember, this article is not an investment advice, but purely educational content for new stock investors.
Frequently Asked Questions
How do you buy shares for beginners?
For beginners that want to buy stocks in South Africa, the process is actually very simple but first you will need an internet-enabled device or a laptop, plus the laptop must be connected to a strong internet connection. Once these things are ready, then you are ready to buy the company shares of your choice.
Simply look for a reputable broker that is licensed in South Africa and open a trading account. Once the account has been activated, you can fund the account with the money that you want to use to buy the shares. The money will serve as your trading capital. On the broker's dashboard, you will look for the company ticker that you are interested in and place a buy order. Once the order has been filled, the trade will execute immediately and you will have the shares in your portfolio. You may consult your investment advisor for further help.
How do you buy shares in a company?
If you are in South Africa, the process of buying shares in a company doesn't have to be complicated. The process is simple enough for newbies to follow through. The first step to take if you are interested in buying company shares is to look for a performing company that will give you good returns on your investment. After that, the next step will be to look for reputable online brokers that will facilitate your access to the market.
Once you have a company in mind and a reputable broker at hand, you can then proceed to open a trading account with the broker, make a deposit to your trading account with the broker, and then buy the shares of the company you have interest in.
How much do I need to buy shares?
In South Africa, the amount required to buy shares depends on the company you're interested in. If you want to purchase the shares of blue-chip companies like Amazon and the rest, you would need around $1,000 to get started. But if you don't have up to this amount, you can still buy stocks using a reputable Robo-Advisor.
Can I buy 1 share?
Absolutely, you can buy a single unit of share in your company of choice in South Africa. Preferably, you can start investing in fractional shares using a Robo-Advisor. Buying fractional shares is a great opportunity if you don't have the required capital to buy company shares like that of Amazon or Facebook.
Risk warning: The products offered by the company are complex instruments and involve high risk. Trading on such products may result in loss of your invested capital. Please ensure that you fully understand the risks involved before entering into any transactions. You should never invest more than what you can afford to lose.
Welcome to PrimeFin
Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.71% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Please read full
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