Abc of the stock market

The stock market is a place where sellers and buyers of shares, bonds and other financial instruments meet to transact business. The place could be a physical location like a stockbrokers office, a trading floor at the stock exchange or even over some computer network. The trading environment is determined by the nature of infrastructure adopted by a specific market.

THE stock market is a place where sellers and buyers of shares, bonds and other financial instruments meet to transact business. The place could be a physical location like a stockbrokers office, a trading floor at the stock exchange or even over some computer network. The trading environment is determined by the nature of infrastructure adopted by a specific market.

In Rwanda, the market started with a dual system where buyers and sellers can meet at a stockbroker’s office while at the same time the stockbrokers meet at the open trading floor located at the Capital Market Advisory Council secretariat, on the 5th floor of Ecobank Building in downtown Kigali.

Like any other market, the stock market has its own language. More often a lot of people out there willing and able to participate in the stock market are put off by the language and terms used by the punters in the stock market. The terms are not as difficult as one may imagine. It is just a question of getting familiar with them through participating in the market.

Anytime you encounter unfamiliar terms, please contact CMAC or any one of its members or stockbrokers. The other faster way of getting used to the market terminologies is to getting into the habit of spending only three minutes of your time looking at the stock market or business pages, in addition to having a chat with your stockbroker more often.

The following are some of the terms you would encounter in the stock market. They are the ABC of the market terms and the stock market investors or traders will use them without remembering that those they are talking to may not be familiar with the language. These terms should not be any barrier to your wise move to use the capital market as one of your wealth avenues. Just like swimming, you only learn by jumping into the water.

Stock

A stock is a share of a company. It is the unit of ownership. When you buy a share in a company, you own a part of the capital of the capital and you become one of the owners of the company to the extent of the number of shares you hold in the company.

Market capitalization

Market capitalization is simply the market value of a listed company. It is also commonly shortened to ‘market cap’. It is arrived at by multiplying the total number of shares forming the capital of a company by the current market price. It changes often as the market price changes. When the price of a stock is rising, market cap also rises and hence the value of the company rises. Companies are compared in the stock market by their market cap. Big cap companies are large and small cap companies are small.

Bid

A bid is a quoted by a stockbroker and is the price at which a buyer is willing to pay for a security he or she is looking for.

To be continued

Mathu is the Chief Executive Officer Capital Market Advisory Council

 

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