Investing in the stock market can seem like a crazy prospect for a generation of young adults that have like Ghc10 in their pocket but if it is done right, you can take that Ghc10 and turn it into Ghc50, and that’s more than you have before. Right?
In order to understand the stock market, we need to understand first what a stock is.
WHAT IS A STOCK
A stock also known as a share or equity is a type of financial security that signifies proportionate ownership in the issuing company. This entitles the stockholder or shareholder to that proportion of the company’s asset and earnings (profit).
Basically, if MTN have 1000 shares and you bought 1 share, you would own 1/1000TH of MTN. The reality is that, both MTN and the companies listed on the Ghana Stock Exchange and all international listed companies have millions of shares. So when you own a share that means that you own a portion of that company so when the value of the company increases so does your stock price.
TYPES OF STOCKS/SHARES
Common Stocks: has voting rights, when you own a common stock you can vote on matters such as board elections, financial decisions of the company and others at general meetings but preferred stockholders cannot.
Preferred Stocks: as the name goes, preferred shareholders are given preference when it comes to dividend payment and they also get preference in other financial situations.
Now, the next thing you might be thinking is,
WHY DO COMPANIES SELL STOCKS/SHARES?
The answer is simple, to get money. Companies raise huge amounts of capital by issuing shares to the public.
You might also think of how companies list shares or how they make shares available for investors like you and me to buy. Let see that;
HOW COMPANIES LIST SHARES/SHARES
Companies list shares through an initial public offering or IPO on an exchange. This changes the status of a company from a privately held company to a public company. Once the company’s stocks are listed on an exchange the public can trade them. In Ghana stocks of companies are listed on the Ghana Stock Exchange (GSE) for public trading. Usually the prices of these stocks will fluctuate based on public opinion but the more concrete determinant of price fluctuation is a company’s earnings and operations.
HOW AND WHY DO STOCKS FLUCTUATE
The stock market is composed of millions of investors and individual traders who all feels different ways about a company. They all make different choices and the net of those choices result in positive or negative movement of stocks. If more people buy, then the price will rise, if the demand is low then tne price will fall. So in a stock transaction there are buyers and sellers. If the buyers are more, the price will rise and when the sellers are more the price will fall.
WHY INVEST IN STOCK MARKET?
Now you might be wondering, well, I don’t have time to understand this, why should I even invest while I can earn 5 – 6% keeping my money in the bank? The answer is very simple, if you do it right, you will earn a lot of money. A common example is when one buy $1000 of Amazon stock back in 1997, he will earn roughly more than $1.5 million today. Well that is a very long investment timeline but that is going to build you a lot of wealth.
HOW TO INVEST IN THE STOCK MARKET.
Now that we know that the stock market is a real time marketplace we can purchase a part of a company’s share, let see how we can invest in it. Buying stocks can be made through a broker ( a firm who arranges transaction between a buyer and a seller for a commission when the deal is executed) or an Online Trading App.
In that regard, the first thing you will need is a trading account.
These account can be in two folds,
A Brokerage Account ( that’s an account with a broker)
An Online Account. ( An account through your trading app)
So now let look in details how we can invest in the stock market either through a brokerage account or an online trading app.
Investing through a Brokerage Account
A brokerage account is a type of investment account that can be opened with a brokerage firm. The account holder can order trades, such as buying or selling stocks and those orders are executed by the brokerage firm.
Brokerage accounts are easy to open similar to a checking account with a bank. To get the brokerage account, one needs to file an application with a brokerage firm (usually banks). The application will ask for basic personal information such as your name, address, social security number etc. Once your application is approved, you deposit money into the account. After your deposited funds settle, you can use the money to buy the stocks or shares from the particular company of your choice. The buying process will be executed by your broker usually at a small fee and after all the transaction processes have gone through, you will be issued with a certificate of ownership of such amount of stocks / shares you bought. And BOOM!! You are now a shareholder.
Investing through an Online Trading App.
These platforms give you the option to buy, sell, and store your purchased stocks on your home computer or your smartphone. With the trading app, one needs to open an online trading account on the app and from there all your transactions can be done through the app. Most of these investment apps provide convenient services at relatively low cost. After opening the account, you can now pick up your smartphone, tap your screen a few times and buy stocks/shares of companies instantly, often for free or at a small fee. Example of such apps that provide free services are Robinhood and Webull usually for international companies. To Trade in share of companies listed on the Ghana Stock Exchange, you might consider getting a brokerage account since the online approach might not be that supported in Ghana.
Learning how to invest in stocks might take a little time but you will be on your way to building your wealth when you understand it very well. Read various investments websites, test out different brokers and stock trading apps and diversify your portfolio to hedge against risk. Keep your risk tolerance and financials goals in mind and you will be able to call yourself a shareholder before you know it.
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