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Understanding Stocks and Shares
What are Equities
Equities refer to stocks of a company measured in number of shares. When you buy a company’s stock, you become a part owner, or shareholder, of that company. Very often, the terms ”equities”, “stocks”, “shares” and “securities” are used interchangeably.
Shares are bought and sold on the stock exchange. In Singapore, this refers to the Singapore Exchange (SGX). A key benchmark for the Singapore market is the Straits Times Index (STI), which tracks the performance of the top 30 companies listed on the SGX, in terms of market capitalisation listed on the SGX.
The minimum number of shares an investor can buy or sell varies from market to market. In Singapore, the minimum transaction is typically in board lots of 100 shares, while other markets may allow investors to buy single shares
Ways to Earn Returns
- Capital appreciation, where the value of a stock increases above its purchase price. This can happen if the company performs well and/or if market conditions are favourable.
Example: If a stock was bought at $1.00 per share and has gone up to $1.15, the return from capital appreciation is therefore 15%.
- Dividends received when a company distributes a portion of its profits to shareholders in cash or additional stocks. Dividends are paid on a per stock basis and may be paid on a quarterly or yearly basis.
Example of cash dividends: A company declares a dividend payout of $0,02 cents per share. If you currently hold 100 shares, you will therefore receive a total cash dividend of $2.
Some companies offer investors the option to receive dividends either in the form of cash or scrip (reinvest the dividends into shares at a specific price). For investors who select scrip dividends, the total share value will be equal to that of the cash dividends.
Benefits & RisksBenefits
Ease of trading
Stocks can be easily bought or sold on the stock exchange.
Buying shares of the company represents an ownership and allows you to benefit from the company's growth and profits.
Prices are reflected in real time on the stock exchange, allowing investors to take action at their desired prices.
Stock prices can rise or fall due to a company performance or the macroeconomic factors affecting the market at large.
Stock prices can be subject to large movements in the stock market on a daily basis. The higher the volatility, the higher the risk.