What information should I give my advisor when placing buy/sell orders?
-Name of the company
-Number of shares
-The price
Can I quote any price I want?
You can quote any price you want in multiples of 10 cents. But first you should check the current market price and quote a reasonable price to ensure that your trade will be executed and also to ensure you don't lose out by quoting a lower price for a sale.
Why do share prices fluctuate?
Share market is similar to any other market. The prices depend on the demand and supply of the shares. For example, if there are more people wanting to buy a stock than to sell it, the price will be driven up because those shares are rarer and people will pay a higher price for them. On the other hand, if there are a lot of shares for sale and no one is interested in buying them, the price will quickly fall.
Apart from this, economic and political conditions will also have an effect on the share prices.
What are ASI and MPI? How do we know whether the market is 'up' or 'down'?
ASI stands for All Share Price Index. This measures the price movements of all the shares of companies listed on the CSE. If this index is higher on a particular day as at end of trading than the previous day's close the market is said to have improved and vice versa.
MPI stands for Milanka Price Index which measures the price movements of a selected group of 25 stocks, a list which is reviewed each quarter.
What's the difference between limit orders and market orders?
Limit orders are the most common orders investors place. It is an order in which the maximum buying price and the minimum selling price is specified.
Market orders are bit complex than limit orders. These are orders to buy or sell a security at the best price or prices prevailing in the market at that point in time. A price is not specified in this order and the trade will be executed at the best price. But the system will automatically calculate a protection price each time a market order is placed to prevent market orders being executed at extreme prices.
I see some companies having N.0000 and X.0000 shares? What's the difference?
'N' stands for ordinary voting shares of a company. People who hold these shares are the owners of the Company. They have the right to vote for or against important decisions the company is making. 'X' is ordinary non-voting shares of a company and as the name suggests does not have the right to vote. Both voting and non-voting shares will be entitled for dividends and all other rights attached to the two types of shares will be similar unless otherwise specified in the Articles of Association of the Company.
As for example, Commercial Bank of Ceylon PLC is having voting shares as well as non-voting shares.
Voting shares – COMB.N0000
Non-voting shares – COMB.X0000
Once I place an order is it final? Can I amend the price or the quantity of my order?
Yes, you can amend the price and the quantity of your order prior to it being executed. If it is partially executed the price and quantity of the un-executed portion of the order can be amended. You can also cancel any order prior to being executed and if partially executed any un-executed portion can be cancelled.
How do I keep a track of the securities I hold?
If you have an online trading account that will show the number of securities you hold and the value at a particular point in time. In addition to this you get a monthly statement if you have had a deposit or a trade that month. If you haven't had a trade for three months you will get a quarterly statement. The statements are issued directly to your address as indicated on the account opening form (therefore, it is important to keep your contact details updated!).
I have heard that advisors can trade shares without our knowledge. Is this true?
Yes it is. This will largely depend on the rapport between you and your advisor. But if you do not want your advisor to trade shares without your knowledge you can transfer all or part of your shares to a 'locked balance' in your CDS account. That is if you are planning to hold that particular share for a longer period of time.
I have been hearing a lot about dematerialization? What is it?
Dematerialization is where the share certificates are converted to electronic form. In other words people holding share certificates are required to deposit their shares in the CDS. New companies issuing shares after 1st January 2011 will not be issuing share certificates. So if you want to invest in shares opening a CDS account is a must!
What if I hold share certificates at the moment?
Then you will have to open a CDS account through your broker and handover the share certificates to deposit it in your CDS account before 31st December 2011. Your broker will forward you a duplicate of the deposit slip they receive from the CDS as confirmation of receipt. Existing listed companies are given a grace period of 1 year to convert their share certificates to electronic form.
What if I want a share certificate to keep as security for a loan?
In that case you will have to withdraw your shares from the CDS account. This request should be made through your broker to the CDS and the CDS will in turn notify the Company Secretary of the relevant company of the withdrawal of such shares and share certificates will be issued by the Company Secretary for the withdrawn shares.
What is 'locked balance' and 'trading balance' of the CDS account?
Trading balance would be visible to the brokers and trading would be permitted on the said trading balance, as done presently.
On the contrary, the locked balance will not be visible to the brokers thereby maintaining the confidentiality of the information and also safeguarding you from any possible unauthorized sale by the broker. However, you can transfer shares between these two balances on a written request made by you.
What are dividends?
Dividends are a share of a company's profit given out to shareholders of the company in different ways. It could either be in cash or in shares of the company. If it is paid to shareholders in cash it's called a cash dividend, which is the most common way to pay a dividend. If dividends are paid in shares it's called a stock or scrip dividend.
What do I have to do to earn a dividend?
You just have to hold the share on the day the effective day for a dividend. But there is no guarantee that a Company will pay a dividend. It all depends on the company's earnings and future strategies.
What does XD mean?
XD date means the market day immediately following the date on which the shareholders pass the resolution relating to the dividend distribution. If you buy the share on the XD date, you will not be entitled for the dividend. The seller will have the right for the dividend.
How do I know whether the Company I've invested in is performing well?
You will be entitled to get an Annual Report (which sets out the financial position and performance of the company) once a year and quarterly reports or half yearly reports will be published on the CSE website. It is very important that you go through these data to see whether the Company is performing well. But unfortunately past performance only will not guarantee a good return in future.
If a company does not pay dividends does it mean that the company is not performing well?
By all means NO! You should always look at the income statement of the Company. The Company could be making profits but does not want to pay dividends because it has attractive ventures to invest in, which could be more advantageous in the long run. But if you expect a short term return then you should think twice before investing in such a company.
I don't understand the financial statements. How do I analyze the performance of a Company?
As an alternative you can use the financial ratios which are commonly used to interpret the wealth of information given in financial statements. This is a fairly easier way to find out whether a company is doing well or not. You can also use the technical analysis which makes use of charts and patterns (among other things) to predict the price movements of shares. You will also have to do some basic research about the company, including but not limited to the quality of its management, the cash flow position of the company, competitive position in the industry and whether its shareholders friendly.
Why do I always hear about Bulls and Bears in stock markets? What did these animals do?
Although America is not the country where the concept of stock markets originated, arguably it is by far the best country that made stock markets popular and also America has the biggest stocks markets in the world in terms of turnover and market capitalization. Therefore most wording that you hear related to stock markets are coming from U.S.
Like we find elephant and water buffalo's in Sri Lankan forests, some of the common wild animals found in U.S. are Bulls and Bears.
Bull signifies market going up. Bear signifies market going down. So if you happen to hear "!today market had a bull run!" or "! banking sector reacted bullish to new tax reforms.. " this means to say it went up. Similarly any reference to bear meaning it went down.
What made going up related to Bull and going down related to bear is the 'Attacking styles of these Animals'. As you know Bull always put its opponent up into the air with their horns when attacking while bear push the opposing party down when attacking.
This is the reason you get to hear a lot about Bulls and Bears in stock markets.
What is a portfolio?
Portfolio as the word suggests is a collection. In the share market context it is a diverse collection of stocks. If you are keen to minimize your risk then you should ideally maintain a collection of stocks in a variety of industries that has opposing earning characteristics. As such the prices of all your stocks would not move in the same direction and if the price of one falls another will rise and net off your position. This is called diversification.
Can I use a different broker from the one I have been using?
You may maintain multiple accounts through several broker firms. You can also transfer securities across accounts held with different broker firms.
What are other securities available on the CSE for trading?
Apart from ordinary shares, debentures and units of funds are traded in the CSE.
What is a debenture?
A debenture is a security that pays a fixed return, has a nominal value and in some instances a fixed maturity. Debenture holders are not owners of the company, they are merely creditors. As such they don't have voting rights. However, unlike shares the return for the debenture holders (i.e. interest) is certain. Whether the company makes a profit or not, they have to pay the debenture holders interest, at the agreed upon interest rate. Further, the debenture holders rank higher than shareholders of a company in the case of a liquidation.
How can I buy debentures?
You can buy debentures from a new issue of debentures or from the secondary market. Debentures are traded on the CSE just like shares although trading of debentures is not very active.
What is this 'Price Band' all about?
The SEC has directed the CSE to apply a formula confirmed by the SEC in selecting stocks on which to apply the 10% price band. For the stocks captured using this formula a 10% upward and downward price band is imposed on the previous day's closing price. This price band will be applicable for 10 market days from the date of imposition. The list of companies on which the price band is applied will be published on the CSE website.
Can we trade shares which have a price band in the normal way?
Yes you can trade. But the price you quote should be a maximum of 10% upward or downward on the previous day's closing price.
Copyright: Sri Lanka Equity Analytics
www.srilankaequity.com
-Name of the company
-Number of shares
-The price
Can I quote any price I want?
You can quote any price you want in multiples of 10 cents. But first you should check the current market price and quote a reasonable price to ensure that your trade will be executed and also to ensure you don't lose out by quoting a lower price for a sale.
Why do share prices fluctuate?
Share market is similar to any other market. The prices depend on the demand and supply of the shares. For example, if there are more people wanting to buy a stock than to sell it, the price will be driven up because those shares are rarer and people will pay a higher price for them. On the other hand, if there are a lot of shares for sale and no one is interested in buying them, the price will quickly fall.
Apart from this, economic and political conditions will also have an effect on the share prices.
What are ASI and MPI? How do we know whether the market is 'up' or 'down'?
ASI stands for All Share Price Index. This measures the price movements of all the shares of companies listed on the CSE. If this index is higher on a particular day as at end of trading than the previous day's close the market is said to have improved and vice versa.
MPI stands for Milanka Price Index which measures the price movements of a selected group of 25 stocks, a list which is reviewed each quarter.
What's the difference between limit orders and market orders?
Limit orders are the most common orders investors place. It is an order in which the maximum buying price and the minimum selling price is specified.
Market orders are bit complex than limit orders. These are orders to buy or sell a security at the best price or prices prevailing in the market at that point in time. A price is not specified in this order and the trade will be executed at the best price. But the system will automatically calculate a protection price each time a market order is placed to prevent market orders being executed at extreme prices.
I see some companies having N.0000 and X.0000 shares? What's the difference?
'N' stands for ordinary voting shares of a company. People who hold these shares are the owners of the Company. They have the right to vote for or against important decisions the company is making. 'X' is ordinary non-voting shares of a company and as the name suggests does not have the right to vote. Both voting and non-voting shares will be entitled for dividends and all other rights attached to the two types of shares will be similar unless otherwise specified in the Articles of Association of the Company.
As for example, Commercial Bank of Ceylon PLC is having voting shares as well as non-voting shares.
Voting shares – COMB.N0000
Non-voting shares – COMB.X0000
Once I place an order is it final? Can I amend the price or the quantity of my order?
Yes, you can amend the price and the quantity of your order prior to it being executed. If it is partially executed the price and quantity of the un-executed portion of the order can be amended. You can also cancel any order prior to being executed and if partially executed any un-executed portion can be cancelled.
How do I keep a track of the securities I hold?
If you have an online trading account that will show the number of securities you hold and the value at a particular point in time. In addition to this you get a monthly statement if you have had a deposit or a trade that month. If you haven't had a trade for three months you will get a quarterly statement. The statements are issued directly to your address as indicated on the account opening form (therefore, it is important to keep your contact details updated!).
I have heard that advisors can trade shares without our knowledge. Is this true?
Yes it is. This will largely depend on the rapport between you and your advisor. But if you do not want your advisor to trade shares without your knowledge you can transfer all or part of your shares to a 'locked balance' in your CDS account. That is if you are planning to hold that particular share for a longer period of time.
I have been hearing a lot about dematerialization? What is it?
Dematerialization is where the share certificates are converted to electronic form. In other words people holding share certificates are required to deposit their shares in the CDS. New companies issuing shares after 1st January 2011 will not be issuing share certificates. So if you want to invest in shares opening a CDS account is a must!
What if I hold share certificates at the moment?
Then you will have to open a CDS account through your broker and handover the share certificates to deposit it in your CDS account before 31st December 2011. Your broker will forward you a duplicate of the deposit slip they receive from the CDS as confirmation of receipt. Existing listed companies are given a grace period of 1 year to convert their share certificates to electronic form.
What if I want a share certificate to keep as security for a loan?
In that case you will have to withdraw your shares from the CDS account. This request should be made through your broker to the CDS and the CDS will in turn notify the Company Secretary of the relevant company of the withdrawal of such shares and share certificates will be issued by the Company Secretary for the withdrawn shares.
What is 'locked balance' and 'trading balance' of the CDS account?
Trading balance would be visible to the brokers and trading would be permitted on the said trading balance, as done presently.
On the contrary, the locked balance will not be visible to the brokers thereby maintaining the confidentiality of the information and also safeguarding you from any possible unauthorized sale by the broker. However, you can transfer shares between these two balances on a written request made by you.
What are dividends?
Dividends are a share of a company's profit given out to shareholders of the company in different ways. It could either be in cash or in shares of the company. If it is paid to shareholders in cash it's called a cash dividend, which is the most common way to pay a dividend. If dividends are paid in shares it's called a stock or scrip dividend.
What do I have to do to earn a dividend?
You just have to hold the share on the day the effective day for a dividend. But there is no guarantee that a Company will pay a dividend. It all depends on the company's earnings and future strategies.
What does XD mean?
XD date means the market day immediately following the date on which the shareholders pass the resolution relating to the dividend distribution. If you buy the share on the XD date, you will not be entitled for the dividend. The seller will have the right for the dividend.
How do I know whether the Company I've invested in is performing well?
You will be entitled to get an Annual Report (which sets out the financial position and performance of the company) once a year and quarterly reports or half yearly reports will be published on the CSE website. It is very important that you go through these data to see whether the Company is performing well. But unfortunately past performance only will not guarantee a good return in future.
If a company does not pay dividends does it mean that the company is not performing well?
By all means NO! You should always look at the income statement of the Company. The Company could be making profits but does not want to pay dividends because it has attractive ventures to invest in, which could be more advantageous in the long run. But if you expect a short term return then you should think twice before investing in such a company.
I don't understand the financial statements. How do I analyze the performance of a Company?
As an alternative you can use the financial ratios which are commonly used to interpret the wealth of information given in financial statements. This is a fairly easier way to find out whether a company is doing well or not. You can also use the technical analysis which makes use of charts and patterns (among other things) to predict the price movements of shares. You will also have to do some basic research about the company, including but not limited to the quality of its management, the cash flow position of the company, competitive position in the industry and whether its shareholders friendly.
Why do I always hear about Bulls and Bears in stock markets? What did these animals do?
Although America is not the country where the concept of stock markets originated, arguably it is by far the best country that made stock markets popular and also America has the biggest stocks markets in the world in terms of turnover and market capitalization. Therefore most wording that you hear related to stock markets are coming from U.S.
Like we find elephant and water buffalo's in Sri Lankan forests, some of the common wild animals found in U.S. are Bulls and Bears.
Bull signifies market going up. Bear signifies market going down. So if you happen to hear "!today market had a bull run!" or "! banking sector reacted bullish to new tax reforms.. " this means to say it went up. Similarly any reference to bear meaning it went down.
What made going up related to Bull and going down related to bear is the 'Attacking styles of these Animals'. As you know Bull always put its opponent up into the air with their horns when attacking while bear push the opposing party down when attacking.
This is the reason you get to hear a lot about Bulls and Bears in stock markets.
What is a portfolio?
Portfolio as the word suggests is a collection. In the share market context it is a diverse collection of stocks. If you are keen to minimize your risk then you should ideally maintain a collection of stocks in a variety of industries that has opposing earning characteristics. As such the prices of all your stocks would not move in the same direction and if the price of one falls another will rise and net off your position. This is called diversification.
Can I use a different broker from the one I have been using?
You may maintain multiple accounts through several broker firms. You can also transfer securities across accounts held with different broker firms.
What are other securities available on the CSE for trading?
Apart from ordinary shares, debentures and units of funds are traded in the CSE.
What is a debenture?
A debenture is a security that pays a fixed return, has a nominal value and in some instances a fixed maturity. Debenture holders are not owners of the company, they are merely creditors. As such they don't have voting rights. However, unlike shares the return for the debenture holders (i.e. interest) is certain. Whether the company makes a profit or not, they have to pay the debenture holders interest, at the agreed upon interest rate. Further, the debenture holders rank higher than shareholders of a company in the case of a liquidation.
How can I buy debentures?
You can buy debentures from a new issue of debentures or from the secondary market. Debentures are traded on the CSE just like shares although trading of debentures is not very active.
What is this 'Price Band' all about?
The SEC has directed the CSE to apply a formula confirmed by the SEC in selecting stocks on which to apply the 10% price band. For the stocks captured using this formula a 10% upward and downward price band is imposed on the previous day's closing price. This price band will be applicable for 10 market days from the date of imposition. The list of companies on which the price band is applied will be published on the CSE website.
Can we trade shares which have a price band in the normal way?
Yes you can trade. But the price you quote should be a maximum of 10% upward or downward on the previous day's closing price.
Copyright: Sri Lanka Equity Analytics
www.srilankaequity.com
