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Stock market trading 101 for newbie investors

Published:Sunday | April 8, 2012 | 12:00 AM

Oran Hall, Contributor

QUESTION:
I am new to the stock market, but I would like to start to invest in it. How do I start and how do I get in touch with a stockbroker? I would appreciate your counsel and advice.

- Ransford

PFA: To buy or sell stock on the stock exchange, you should go to any of the stockbrokerage firms authorised to trade on the exchange. Stockbrokers are able to advise you and thereby empower you to make suitable decisions, but you must open an account before you can transact business with them.

Before making your decision, you need to do some serious research of your own. See which sectors of the economy look more promising and select companies in those sectors.

Analyse their performance and determine from your analysis what their prospects for the future are. The websites of many of these companies also carry very valuable information and several investment houses publish their research on their web sites and in their newsletters.

Study these carefully. When you buy stock, you are buying on expectations of good future performance.

Once you have chosen the stock you want to purchase, you will indicate how many units you want, and the price you are willing to pay. You may place a market order, which specifies the number of shares you want to buy or sell at the best available price.

You may, however, place a limit order whereby you specify the maximum price you are prepared to pay, or the minimum
price you are prepared to sell at. You may choose to place a day order,
which is valid only for the day on which the order is
placed.

The minimum size of orders varies. One broker,
for instance, requires a minimum of J$25,000; another requires a
minimum of 100 units of stock but charges a minimum commission of J$500.
Once the order has been executed, your broker will issue a contract
giving details, including commission and other charges, of the
transaction.

Transactions are done on a cash basis,
that is, you are required to pay in cash or by cheque for the stock
purchased. Stockbrokers charge a commission of about two per cent of the
value of the transaction and there are fees payable to the Jamaica
Stock Exchange (JSE): a trade fee that varies from J$75 to J$500,
depending on the size of the transaction, and a cess, which is 0.20 per
cent of the value of the transaction. General Consumption Tax applies to
all fees.

The Jamaica Stock Exchange operates on a
T+3 settlement cycle meaning that buyers have three business days after
the transaction date to pay for the stock, and sellers have three days
to deliver the stock, now easily facilitated by the Jamaica Central
Securities Depository. Here, brokers register the stock holdings of
their clients electronically thereby removing the need for physical
certificates.

Junior stock
exchange

You may have noticed that the JSE operates a
junior market for small and medium-size companies thereby giving the
investing public an opportunity to participate in the growth of such
companies.

You are responsible ultimately for how you
fare on the stock market. Make your own decision - with some guidance
from a trusted, qualified, and informed person if you deem it necessary.
Make sure the decisions you make are consistent with your goals. Do not
rely entirely on the advice of your stockbroker.

Only
you know how much money you can invest in the market. Avoid tips. Do
not be fooled into believing that the stock to buy is one that has done
very well in the recent past. You may be buying it at its
peak.

Investing is a long-term business, so you need
to be patient. It is not prudent to invest money you may need soon
because it may be difficult to sell at the time you need the funds.
Further, you may not be able to recoup all of the funds you
invested.

You should not buy stock with money you
cannot afford to lose. In fact, investing in stocks should only be one
part of your investment strategy. Decide on how you want to spread your
funds among the different types of investment vehicles before launching
into the stock market.

Be realistic in your
expectations and be aware of your risk tolerance. Be satisfied in your
mind that you are able to deal with losses. Visit the website of the JSE
- www.jamstockex.com - for information on the stock
market and for a list of all local stockbrokers.

Oran
A. Hall, a member of the Caribbean Financial Planning Association and
principal author of "The Handbook of Personal Financial Planning",
offers free counsel and advice on personal financial
planning.finviser.jm@gmail.com