Oran Hall | Stock trading for student investor

QUESTION: I am an 18 year old prospective upper six student. I study accounting and economics and I have developed an interest in the Jamaica Stock Exchange. However, I'm not sure of how the buying and selling occurs and I'd like to know more about it. — Natoya

FINANCIAL ADVISER: To buy or sell shares, contact a stockbroker who is a person whose business it is to buy and sell shares at one of the brokerage firms authorised by the Jamaica Stock Exchange, the JSE, to operate in Jamaica.

It is best to make a personal visit to the broker to complete the account-opening process and to discuss your investment objectives and plans.It is useful to know your broker, who is your link with the market and is responsible for buying and selling stocks according to your orders.

The broker will also open an account for you with the Jamaica Central Securities Depository, a wholly owned subsidiary of the JSE. It is a facility for holding securities, which enables share transactions to be processed by book entry.

A book entry system is an accounting system which facilitates the change of ownership of securities electronically between parties, without the need for movement of physical documents. In short, the JCSD is an electronic means of recording the ownership of shares.

After your initial meeting, you can place your orders by a mutually agreed method, but it is best to give your instructions in writing. The buying/selling process begins when you place the order with your stockbroker for a specified number of shares in a company. There are three types of orders that you can place:

A market order — asks your broker to buy or sell stock at the market price.
A limit order — sets the price at which you want stocks to be bought or sold.
A stop order — which gives an approximate buying or selling price for the stock. When the approximate price is reached the stop order becomes a market order.

You will receive a contract note that states the company whose stocks you have bought or sold, how many units, the price paid or received, the commission and other fees and the settlement date. You should pay your bill by the settlement date, which is two business days after the transaction date.

Commissions are used to pay for your broker’s salary and for the services the firm provides. When you buy you pay your broker for the value of the stock plus the commission and other charges. When you sell your stock, you receive the value of the stock less the commission and other charges. The commission charged is agreed upon between the stockbroker and the client.

Besides the broker’s commission, the other charges attached to the purchase and sale of shares are: the JSE cess of 0.3 per cent on either side of the transaction and the JCSD fee which is set in bands ranging from $100 for transactions with a value of up to $50,000 to $660 for transactions with a value of over $10 million. General Consumption Tax of 15 per cent is charged on both the commission and the fees.

Some brokerage houses will provide you with regular information about market conditions affecting investment, research material and advice as to which stock to buy or sell. Your broker will also help you to keep an accurate and complete record of all your market transactions. After each transaction on your behalf, your broker will also send you complete details. Although brokers can provide you with information about a particular stock, it is really up to you to choose which stocks to buy or sell.

In order to choose your broker, you need to establish your criteria, then speak with several brokers, and consult other investors. Some firms advertise in the newspapers or business publications and are listed in the Yellow Pages of the telephone directory. A list of the JSE member firms is available on its website — www.jamstockex.com. You should deal with the broker with whom you feel most comfortable and in whom you have the most confidence.

To get the best service from your broker, state clearly upfront what your investment objectives are and then ask the broker how he/she would go about meeting those expectations. Thereafter, show an interest in your account, seek your broker’s advice, honour your agreements and settle your transactions on a timely basis.

Trading on the JSE is conducted on Mondays to Fridays between 9:30 a.m. and 1 p.m. on a computerised trading platform.

You should do the following before you buy shares:

• Collect and study as much information as possible about the company in which you intend to invest;
• Seek professional investment advice from a broker or other qualified persons;
• Learn how to read and understand the basic financial statements and reports which the companies listed on the Stock Exchange are required to publish; and
• Develop the habit of reading and understanding the financial publications.

After buying shares, monitor and track your investments by maintaining a daily stock worksheet.

- Oran A. Hall, principal author of ‘The Handbook of Personal Financial Planning’, offers personal financial planning advice and counsel.

finviser.jm@gmail.com