Get to know more about the ins and outs of how share ownership and trading works to make your investing experience even better and more rewarding.

The basics of share ownership

What is a share?

It is quite literally a share of the ownership of a company. It is also known as equity or stock.

Why own shares?

You get certain rights, such as the right to vote on important company decisions, and the right to receive dividends paid out of the profits.

How are companies valued?

The value of a company is worked out by taking its assets and subtracting its debts (Known as the Net Asset Value).

How do shares differ from saving?

Share prices and company dividends can change for better or worse. Savings grow predictably according to the interest rate for the account.

Different stock market investment products

 

The two main types of shares

Ordinary shares come with rights to voting and dividends that can change. Preference shares behave more like debt - the dividend is at a fixed rate.

Exchange-traded funds (ETFs)

These are essentially shares in a portfolio made up of different companies. They are a way to easily have a diversified portfolio.

Exchange-traded notes (ETNs)

Similar to ETFs in some ways and bonds in others, ETNs are basically a promise by an institution to pay you a certain amount (a debt instrument).

Other instruments

The Johannesburg Stock Exchange (JSE) has many other instruments listed, such as bonds, index futures, contracts for difference and other derivatives.

Think about the risk

 

What is risk?

Risk refers to the chances of how often and by how much prices will go up and down.

The best way to manage risk

Numerous studies have shown that the way to reduce your risk is to  diversify your portfolio as much as possible, buying shares in a number of industries or sectors.

Some things to look out for

Consider a company’s size, how high their fixed costs are, how much they have borrowed, and how many of their shares trade daily (liquidity of the share).

Take smart risk

Diversify your portfolio by investing in about 20 to 30 companies in different industries, and keep a close eye on your trading costs.

Deciding on an investment strategy

 

Dividends

Companies may pay out a cash dividend to shareholders every six months or yearly, depending on profits made and their growth strategy.

Capital growth

This is the growth in a share’s price over time. It can be an important source of return on your investment.

Which strategy should I follow?

Dividend paying companies are great if you want a fairly regular income, while capital growth companies are better if you want long term growth.

Tax implications

Dividends attract dividend withholding tax when they’re paid, while selling shares at a profit attracts capital gains tax (long-term trading) or income tax (short-term trading).

Share prices explained

 

How are shares priced?

Shares are priced based on how the market values a company, divided by the number of shares in issue.

What do share price graphs tell you?

They are useful to see how a share has been performing and may give you some insight into how a share price is trending.

High and low prices

These are the highest and lowest prices for trades that have happened during the day.

Volume-weighted average price

The price of shares traded, weighted by the number of shares traded at each price during the day.

Placing a trade order

 

What are bids and offers?

Also known as the Buy or Sell price, these are the prices buyers or sellers are currently willing to trade their shares at.

Market depth

This shows how many offers to buy and sell are currently in the market. This is a good way to tell if your order will trade successfully (be executed).

What is the right price?

The right price depends on what you think a share is worth. Also look at current buy and sell prices, market depth, and think about how quickly you want to buy or sell.

Types of trades

A Best or At Market order will trade at the best available price, while an At Limit one will set a limit on the price you are willing to buy or sell at.

The costs of trading

 

Brokerage

This is the fee that Absa Stockbrokers charges for the trade, and depends on the account type you have and instrument type being traded.

Strate and Investor Protection Levy

Strate is a settlement charge for trade transactions. Investor Protection Levy is a JSE fee for monitoring and enforcing trading rules.

VAT

Value Added Tax is charged on the brokerage, Strate charge and levy amounts.

Securities Transfer Tax

Securities transfer tax is a government imposed tax on all stock trading, levied at an amount of 0.25% the value of the trade. This tax is only imposed when you are purchasing shares

Learn about advanced topics

Need more help

Call us on: 0860 05 04 03
+27(11) 225 8018 (International)

Email:
equities@absa.co.za