“The Johannesburg Stock Exchange (JSE) is a market. Simplistically it is a market where buyers and sellers meet. In the first instance you have companies that would go to the market to raise capital for their expansions, and those we call the issuers, so those are the companies that are based on the JSE,” explained Mpho Ledwaba, head of marketing, brand and events at the JSE.
“On the other hand you have people who have got money and they would like to invest the money to get a return, those would be the investors who need the JSE,” added Ledwaba.
Trading on the JSE
The JSE facilitates and regulates the trading between the buyers and sellers on the market. “We are a self-regulated organisation, but we also have the regulation from the financial services board that looks at the conduct of the market. In doing so we also facilitate the trade. So you have brokers on one side who will trade on behalf of their clients (the investors), and the JSE provides the platform or the trading engine for the buyers and sellers to transact,” revealed Ledwaba.
Individuals cannot trade on the JSE in a personal capacity. You have to go through a registered accredited broker in order to invest.
“Most importantly, those brokers are also authorised financial services providers, so they will also give you advice as to where you should place your money. In that they will ask you for a mandate where you can give the mandate to buy and sell on your behalf without you having an active role. Or you can take the mandate and buy and sell on your own, putting the order through them, but there you will get the guidance from them.”
Ledwaba emphasised: “We would like to caution the public that there are some people who say that you can access the stock market directly without a broker. That is not true. There are some organisations that are selling software packages to people telling them that they can trade the stock market directly and that they can make a lot of money by doing so. Those software packages are just analytical tools that are just looking at trends of the share prices and you can get that from any broker that gives you online access to trade on your account.”
The JSE stressed on its website that you do not require any stock-monitoring or share-trading software to invest or trade on the JSE. “The JSE does not sell, endorse or authorize any such software – any marketing claims made that suggests otherwise are incorrect,” stressed the JSE.
It is important to consider the manner in which investment and trade operate. “Many marketing campaigns of stock monitoring or share-trading software claim that? the software allows investments and/or trades directly on the JSE. This is incorrect. A person can only invest and/or trade on the JSE by opening an account with a broker (also referred to as “Members”) of the JSE.”
A broker can manage your investment for you, or they can allow you access to their facilities, allowing you to manage your portfolio yourself. “People often view this as a direct method of investing and/or trading on the JSE, but actually the investing and/or trading is done through the broker - even though you are making your own decisions about what and when to buy and sell,” explained the JSE.
The pros and cons of investing on the JSE
“One big pro of investing in the JSE is that you get access to the growth that would come from the market. For instance, if the All Share Index (which is an indicator of an average price movement of all shares that are on the JSE) has been growing at a phenomenal rate (over the past few years it averaged 19%) then you get access to that kind of growth,” highlighted Ledwaba.
He added: “The negatives of that is that if the market goes down it can also affect your capital that you have invested. To avert those negatives, we encourage people to invest their money for a longer period, because what we have seen over history is that the performance of the stock exchange over a number of years actually beats the down side of what could happen with a particular share.”
Another thing that can be quite risky is investing in one particular share, as your investment will be affected by the movements of that share. Ledwaba pointed out that there are investment options available where you can buy into an index, and therefore have your investment spread out across several different shares, spreading the risk.
“For individual investors, if you are starting out and you do not know where you are trading, the suggestion would be try something like an exchange traded fund, but also make sure you get advice from a broker because those people are financial advisors and they have been doing this for ages. Buying a basket, which is an exchange traded fund, can spread your risk, as well as you get all the returns from a number of companies that are on the underlying of that exchange traded fund,” noted Ledwaba.
Furthermore, Ledwaba stressed that through the introduction of the tax-free savings accounts earlier this year, people can invest on the JSE through these accounts, and not have to pay tax on the growth and dividends of their investment.
To visit the JSE website, click here