Buying and Selling Shares on the CSE

Market or limit order?

Market orders are to buy or sell at the prevailing market price. A limit order on the other hand, is an order to buy or sell a stock at a specific price or better. A buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher.

There is no guarantee of a limit order being executed.The price and market depth over time that the order is in the market will affect the likelihood of a trade.

Steps to buying shares

If you want to invest in shares of 'X' company, you need to:

1. Inform your stockbroker of the name of the company, price and amount of shares you want to purchase.

2. The stockbroker will try and match your order.

3. When the order is processed, he will inform you of the shares you purchased at the price you had requested.

When the buying process is complete, you will:

4. Receive a Bought Note.

Steps to selling shares

If you want to divest shares of 'X' company, you need to:

1. Inform your stockbroker about your divestment - the name of the company, the price and the amount of shares to be sold.

2. The stockbroker will try to match your order.

3. If your order is not matched, he will inform you and negotiate a suitable price. When the order is matched, it will be processed.

If the stockbroker sells your shares, you will:

4. Receive a Sold Note for your transaction.

As we discussed previously, the volume of shares being bought and sold in a particular stock reflects its liquidity. This is an important consideration because the more liquid a stock, the easier it is to buy and sell quickly at a price you expect.

Many companies have very active markets for their shares with a large portion of shares traded on a daily basis. But there are also companies that have relatively little activity in their shares. The difference between the buy price and the sell price may be a bit wider for an illiquid stock than for a liquid stock. If you wish to buy a larger quantity of shares of an illiquid stock you might have to pay a bit more than the current sell price to get your order filled.

Bought Notes and Sold Notes

Bought Notes and Sold Notes are contract notes or confirmations sent to you by the stockbroker, if your order results in a trade. These notes confirm and are proof that your order was executed and act as evidence that transactions had taken place with your approval.

These contract notes inform you of all transactions that have taken place in your account on a said date. It is very important to check the details on the respective Bought Note or Sold Note closely and to save all such paperwork as reference to crosscheck your orders and actual purchases.

CDS statement

The CDS statement is a summary of all the transactions that have taken place in your CDS account and shows you the remaining share balance. A monthly and or quarterly statement is issued to all active account holders (account holders who have carried out at least one transaction during a particular month/calendar quarter). An annual statement is issued to inactive account holders (account holders who have not carried out transactions during the year and have balances in their accounts).

Factors to be considered when selecting shares. In an earlier version of the article series (Part4: Deciding what shares to buy) we discussed the types of shares you may come across in the market based on factors such as return, value, growth potential and risk. We will now look at more company and industry specific factors that could affect your decision.

Valuation Ratios (also known as Valuation Multiples)

Ratios such as Price Earnings Ratio (P/E), Price to Book Value Ratio (P/BV), Dividend Yield (DY) and Price to Cash Flow Ratio (P/CF) for the share must be looked into. These ratios are not meaningful in isolation. To make these ratios meaningful, they should always be compared with a relevant benchmark.

Impact of economic and political factors. Key indicators such as interest rates, the rate of inflation, exchange rates, policies on taxation and monetary policies need to be considered. Political stability of the country also tends to have an impact on the market.

Attractiveness of the industry. Different industry sectors display some key characteristics that may either attract or repel investors. Factors such as market demand and supply for the goods or services produced, competition among industry players, industry specific government regulations and expected growth of the industry ought to be considered when investing.

Company's position in the industry. Considering the performance of the company in its respective industry is a must. You could consider factors such as the market share of the company, cost efficiencies, growth prospects, corporate leadership and competitive advantage when making your conclusion.

Financial performance of the company. It is important that you research and use the wealth of information provided in a company's financial statements and other publications when evaluating a company as a potential investment.