By Dipo Olowookere
The last time, I wrote about key things to take note of before investing in the recharge card business especially with the way fraudsters try to lure unsuspecting victims into the business.
Today, I am focusing on the stock market, explaining some terms used in the sector.
The stock or equity market is one aspect of the capital market some people get confused about because of its high volatility.
By high volatility, I mean you can gain a huge amount in one trade and loss everything in the next transaction. It is unlike the fixed income market, another aspect of the capital market, where at the point of investment, you know what you are getting as profit.
Now to the common terms used in the market.
Share/Equity/Stock
These terms are commonly used interchangeably and they mean the same thing. A share is like an indivisible unit of capital showing you are one of the owners of a company.
When a company, owned by more than one person, is established and registered as a business entity, it must indicate its ownership structure, which is represented by the number of shares held by each of the persons. It is by this percentage the owners share any profit or dividend recorded by the firm during a given period of time.
Now, a company in need of cash to expand its operations can approach the stock exchange to sell its shares to the general public through an Initial Public Offering (IPO), also expanding the number of persons owning stakes in the firm.
When this is done, the stock market regulator, which is the stock exchange, allows trading of the shares of such company on its platform.
The value of these stocks at the market are determined by demand and supply as well as information about company, the sector or the country’s economic and political happenings.
If a company is having an internal crisis that found its way to the public domain, it is natural for some people, who bought shares of the firm, to panic and if they foresee that the crisis could be ‘brutal’, they will quickly offload (sell off) their shares, resulting in many sellers, but less buyers. Like in the elementary Economics, when this happens, the price of the commodity falls; vis-à-vis.
Trade
This is mainly the buying and selling of stocks on the floor of the exchange. It is the process of executing a transaction; selling or buying of shares of a company at the stock market at a particular price.
Deal
It is a single transaction carried out by a shareholder or investor during trading in the stocks of a company at the market.
Volume
The volume of shares is the total number of units of equities traded during a given period of time at the stock exchange. As expected, the volume of shares transacted by investors at any given trading session either rises or falls.
Value
This is the worth of an equity trading at the stock market. In stock market reporting, this could mean the total worth of stocks traded at the market for a given period of time.
Market Capitalisation
This is simply the total value of shares of the company selling its shares at the stock market. For example, if a company has a total of 1,000 shares selling at N5 each, its total capitalisation would be 1000xN5, which gives us N5,000.
As at the close of trading on Thursday, the total value of shares trading at the Nigerian Stock Exchange stood at N13.196 trillion.
All-Share Index (ASI)
The ASI is a bit complex, but I will try to break it down to make it understandable. It is mainly a statistics showing the direction or performance of the stock market.
Because during a trading day, some stocks will appreciate in price, while others will depreciate in value, with some remaining unchanged. As a result, there was the need to have an indicator showing a true reflection the market’s performance at the trading session.
So, in January 1984, the NSE put its index at 100 points and as at yesterday, it closed at 36,427.22 points after gaining 80.42 points.
Bear Market
This is when the market records a loss
Bull Market
This is when the market records a gain
Full Bid
This simply occurs when there are prospective buyers at the stock market but no willing sellers. This happens when investors have information that the stock may appreciate in price and there is a rush to own the stock so as make profit after selling it at a higher price.
Full Offer
This is the direct opposite of ‘full bid’. This occurs when there are prospective sellers of a stock but no buyers.
52 Week High
This is simply the highest value a particular stock was sold at in the past 52 weeks (one year).
52 Week Low
This refers to the lowest value a particular stock was sold at in the past 52 weeks (one year).
I will continue this piece in a subsequent post.
However, before then, please feel free to let me know where you require any further clarification.
