This is a short overview on how the JSE works, the purpose of this article is to give out information to people who are interested in the Johannesburg Stock Exchange. This will give you an understanding of what a stock exchange is and how it works.
Looking for a website?
Give your business the online presence it deserves. Get an incredibly cheap website from Promta.
What is a stock exchange?
It’s a facility where stock brokers and traders can buy and sell securities such as shares of stock and other financial instruments. Basically, it allows you to buy shares from publicly traded companies, in South Africa you can buy shares from Sasol and other companies through the JSE. The idea of a stock market started in the 1600s, the first company to issue stock and shares was the Dutch East India Company.
The Dutch East India company employed hundreds of ships to trade gold, porcelain, spices and textiles around the world. Running this operation wasn’t cheap because of how massive it was, the company turned to private citizens in order to fund their expensive voyages. These individuals could invest money to support the ships in exchange for a share in the ship’s profits. This practice allowed to company to expand fast, increasing profits for themselves and investors.
Since then, companies have been collecting funds to willing investors to support their businesses.
What is a stock?
A stock (share) is a financial token instrument that signifies ownership of a company in some proportion. Basically, if Naspers had 1000 shares and you bought 1 share, you would own 1/1000th of Naspers. When you own a stock, it means that you own a part of that company and as the value of the company increases, so does your stock. Let’s say for example you bought 1 share with R10, then the value of the company increases 10 times within the next 3 years then your 1 share will now be worth a R100. That’s a huge increase on your initial investment of R10.
What is a broker?
A stock broker is a gateway between you and the JSE. You can’t buy shares directly from the JSE, you have to find a broker who will act on your behalf. You will give all your trading information to this broker, information like what shares you want to trade in, the number of shares and the price. They will submit the order to the JSE on your behalf. You can not buy shares without a stock broker.
What is the minimum amount to invest?
There is no minimum amount for investing in the JSE. You might have to pay charges for placing trades, these are normally charged by your broker.
What happens If the company I invest in doesn’t grow?
Using our previous example, if you bought shares from Naspers at R10 per share and the company loses value instead of growing. Let’s say the share price for one share drops to R1, then you would have lost your money, that’s why it’s advisable to invest in reputable companies. However, there is no exit period on the JSE, your share value could drop to R1 then bounce back to R15 within a couple of months or years.
Conclusion
This is a brief overview of how the JSE works, if you want to learn more about the JSE and how to trade the stock market then you should enrol for an online course. Do you have any thoughts or questions? Comment below.
