Frequently Asked Questions About Stocks
A stock or share (also known as a company's "equity") is a financial instrument that represents ownership in a company or corporation and represents a proportionate claim on its assets (what it owns) and earnings (what it generates in profits).
- The shareholder benefits from the growth in the value of his or her shares over time in order to get the best returns on their investments, whether over the long or short term. It is wise to regard shares as long-term investments. That is, over time the shares can be worth more than what was paid for them.
- The shareholder can receive income through dividends declared from time to time and paid by the company's directors.
- The shareholder gets the opportunity to participate in the continuing development of the companies in which they invest. The involvement of shareholders helps the companies and strengthens the economy.
Preference Shares are shares where ownership does not have any voting rights but has preference over the owners that has common shares in the company to receive dividends as well as assets in the event of a liquidation. The most common types give the preferred shareholder:
- The right to receive dividends at a fixed rate prior to payment of dividends to ordinary shareholders.
- The first right of payment should the company go bankrupt or be dissolved.
- Ordinarily no voting rights.
Ordinary Shares are shares where the owners have voting rights in proportion to the number of shares owned. Common shareholders or Ordinary shareholders have:
- The right to receive dividends if and when these are declared by the Board of Directors.
- The right to vote at meetings of the shareholders (like the annual general meeting or AGM)—where matters such as election to the board of directors or appointment of auditors are voted upon.
- The right to claim a portion of the company's undivided assets, “Providing a Fair, Efficient and Transparent Stock Market”
- The right to subscribe to additional stock or share offerings before they are made available to the general public. This is known as pre-emptive right.
A dividend is a proportionate distribution of earnings (profits) of a company to its shareholders. It is made by publically listed companies as a reward to investors for investing in the company.
With common (ordinary) shares or stocks, the rate of the dividend varies with the company's performance and the amount of cash on hand and the Board of Directors of the company decides the amount of the dividend to be paid out. They may also decide to hold back some of the profits to expand the company's operation.
With preferred stocks or shares, the rate can be fixed or variable. Dividends can be paid quarterly, half yearly or once per year
Companies issue shares in order to raise larger amounts of capital than it can get from ongoing operations or a traditional bank loan. It does so by selling shares to the public through an initial public offering (IPO) through the financial markets. This simply means that the company will no longer be owned only by a private investors but also by investors of the general public.
Individuals become investors in this company by purchasing those securities. As investors and part-owners in companies of their choice, they are able to participate in the companies’ growth and development. In turn, companies which raise capital from the sale of shares are able to expand.
An investor can buy or sell stock on your own by opening a brokerage account with one of the many brokerage firms (for example Cumax Wealth Management). After opening your account, connect it with your bank checking account to make deposits, which are then available for you to invest. Click here to learn more.
A broker or a brokerage firm for example Cumax Wealth Management is an investor’s link to the market and is authorized by the Financial Services Commission and the Jamaica Stock Exchange to operate in Jamaica to buy and sell shares on behalf of an investor.
An investor can open a brokerage account with a licensed brokerage for the purpose of buying and selling securities. To gain access to the different types of stocks from the different public companies, these stocks are listed on the stock exchange market.
The Jamaica Stock Exchange plays a unique role in providing companies who list their securities on the Exchange with a liquid market for the trading of those securities; benefiting all investors. It is simply a marketplace with security listings from Jamaican and within Caricom, that is, shares, stocks or bonds are bought and sold quickly, efficiently and under strict regulations for the protection of investors. The JSE functions to:
- To provide An additional channel for encouraging and mobilizing domestic savings
- To foster the growth of the domestic financial services sector
- To provide savers with greater opportunities to protect themselves against inflation.
- To increase the overall efficiency of investment
- To facilitate privatization.
- To improve the gearing of the domestic corporate sector and help reduce corporate dependence on borrowing.
The Jamaica Stock Exchange operates like other stock markets in the world. You choose a stockbroker, decide on a stock and place your order to buy or sell with your broker. Once this is done, your broker will purchase or sell your shares. The trade is complete when the trade that is placed by a buying broker on the electronic trading platform (JTRADORPRO).
Trading on the Jamaica Stock Exchange is conducted on Monday to Friday between 9:30 a.m. and 1:00 p.m. through an electronic trading platform which was introduced in 2000