The stock market can be confusing and even intimidating to the average person, so people often avoid it entirely. Many tend to opt for more traditional investment options, such as gold or real estate. However, once you begin to understand the stock market, you can arm yourself with a powerful wealth-building tool. We created this basic guide to demystify the stock market to make investing easy and accessible to everyone.
What are stocks?
Stocks are the pieces of ownership of a company that individuals, or investors, can buy. Once an investor buys stocks, they now own a piece of that company. Simply put, the value of a company’s stock reflects its performance, but performance can be affected by multiple factors, both long- and short-term, such as recent news about the company or industry in question, recent acquisitions, revenue, etc.
Selecting a stock to invest in is not as simple as merely evaluating which companies appear to be growing and making a profit and which are struggling. Choosing the best investment option for you depends on a number of factors, the first of which is whether you are looking for something short-term or long-term. Both have their merits and demerits. For example, long-term investments can help you grow your portfolio and achieve future financial goals, while short-term goals are often considered to be a safer bet with quicker returns and the ability to meet short-term financial goals. Most experts recommend including a mix of both long- and short-term investments in your portfolio.
A notable example of short-term investments is “day-trading,” which is the buying and selling of stocks online over the course of a single day with the aim of making profit from minor price fluctuations. Long-term investors, on the other hand, are usually in it for the long haul. Examples of long-term investments include “growth investing,” which is a type of investing that involves evaluating a stock’s health and its future potential to grow and become profitable. Another type of long-term stock investment is “Dollar-cost averaging (DCA), which involves making investments in the market at regular intervals. Both of these aforementioned investment types require a steadier and more disciplined approach to investment; one that does not expect quick and easy profits.
What is the stock market?
Following the economic principle of supply and demand, the stock market is essentially a group of investors buying and selling company stocks based on how much they think these stocks will be worth in the future. There are two different ways shareholders can turn a profit through the stock market: dividends and capital gains. With dividends, you essentially receive a share of the company’s distributed profits, which depends on how many stocks you own. Capital gains, on the other hand, involves buying stocks at a certain price and selling them at a higher price for a profit.
Stock Exchange vs. Index
The stock market in every country has one or more indexes, such as the S&P 500 or Dow Jones. An index is a benchmark to know how the entire market, or a sector of the market, is doing. Each country has its own index that follows the top companies trading on that exchange and assigns each of those companies a score. As individual share prices rise and fall, those changes affect the total value of the individual index. In Egypt, the EGX 30 is the most followed index, tracking the stock price of the 30 companies that have the highest value of transactions in a day.
Exchanges are the locations, both real and virtual, where stocks are bought and sold. Egypt’s stock exchange is in Cairo and Alexandria, and it has historically been regulated by a number of decrees, the most recent of which is the Presidential Decree No. 191 of 2009. The exchange in both cities share the same board of directors, trading, clearing and settlement systems. When stocks are bought or sold, the exchange where it takes place will ultimately play a role in the transaction.
How and where to invest in Egypt
There are a few platforms you can use to begin your investment journey. Some platforms, like Thndr, offer a free tier and help you by simplifying the investment process so you can get acquainted with investing on your own.
You can also use a brokerage firm, which acts as a middleman by facilitating transactions between buyers and sellers for a commission or fee that is charged upon each completed transaction. You can check the EGX for a ranking of Egypt’s most successful brokerage firms here:https://www.egx.com.eg/en/MemberFirmsRanking.aspx?Code=1032.
You may be wondering if investing is worth it for you. While nobody is required to invest, it can help people build wealth over time, with returns that, on average, can be much higher than the interest that money earns in a savings account.Strategic investing can help you save up enough money for large financial goals, such as paying for university, buying a house, or retiring from work. It can also be used as a second source of income to increase your financial freedom.