There are many Nigerians who are interested in participating in the stock market, trading shares and making profits. For many, though, their inability to understand even basic terms in the investment world serves as a deterrent. While most shy away for this reason, others who are bold enough to dive in run additional unnecessary risks to their investments. To make investment clearer, here are the meanings of 8 words you will frequently come across in the investment world.
Broker
This is somebody authorized by an investor to buy or sell their orders. Stock brokers also provide advice and make recommendations to their clients, but must have a client instruction before executing a trade behalf of that client. They usually charge a commission for the service they render their clients. To be accepted as a broker, though, they need to possess certain relevant certification.
Initial Public Offer (IPO)
This refers to the first time a private company decides to offer its stock to the public for sale. IPOs are carried out either by small private companies seeking capital or by large private companies who want to become publicly traded. With IPOs, the limited number of private shareholders of a company dilute the proportion of shares they have.
Issuer
This is a company, corporation or any legal institution for that matter that develops, registers and sells securities for the purpose of financing its operations. The most common types of securities issued are common and preference stocks, bonds, notes, debentures, bills and derivatives
Bid /Offer Prices
Ever wondered what stock brokers stare into their computer screens for? They are looking at bids and offer prices for different stocks. A bid is the highest price that a buyer is willing to pay for a stipulated portion of stock. The offer price on the other hand refers to the lowest amount the seller is ready to sell the same portion of stock for. Both seller and buyer do not have access to the other party’s offer. It is brokers and investors who have both and the job of matching suitable buyers and sellers. The prices fluctuate as the trading day goes on.
Bonus Issue
Also known as capitalization issue, stock split and scrip issue, this refers to the process where a company’s existing shares are further split by a certain factor into multiple shares. This does not however increase the Naira value of the shares. Although the number of shares outstanding increases by a specific multiple, the total naira value of the shares remains the same.
Book building
Where do companies giving Initial Public Offers get the prices to sell their shares for? Book building. This is carried out by an underwriter who uses demand from institutional investors to ‘build a book’ containing quantity of shares and price offered by fund managers
Custodian
An institution authorized by an investor to hold and manage asset portfolio for an investor. They have the legal responsibility for their customers’ securities, which implies management and safekeeping and charge a fee for these services.
All-Share Index
While an index is a way of measuring the value of a section of the stock market, the All-Share Index measures the value of the general market movement of all listed equities on the Exchange, including those listed on the Alternative Securities Market (ASeM), regardless of capitalization. It is used by investors and financial managers to describe the market, and to compare the return on specific investments
