WHY DO WE INVEST?
To make sure we have enough funds to be prepared for the future. Simply earning and saving is not enough. Inflation – the price-rise beast – eats into the value of your money. To make up for the loss through inflation, we invest and earn extra. This is the investment fundamental. The stock market is one such investment avenue. It has a history that goes way back to 1954.
Earlier, stockbrokers would converge around Motijheel to conduct trades of stocks. As the number of brokers increased and the streets overflowed, they simply had no choice but to automate.
In 1998, the Dhaka Stock Exchange or DSE was automated. Within a few years, trading on the exchange shifted from an open outcry system to an automated trading environment.
This shows that stock markets in Bangladesh have a strong history. Yet, at the face of it, especially when you consider investing in the stock market, it often seems like a maze. But once you start, you will realize that the investment fundamentals are not too complicated.
WHAT IS SHARE MARKET?
A share market is where shares are either issued or traded in.
A stock market is similar to a share market. The key difference is that a stock market helps you trade financial instruments like bonds, mutual funds, as well as shares of companies. A share market only allows trading of shares.
The key factor is the stock exchange – the basic platform that provides the facilities used to trade company stocks and other securities. A stock may be bought or sold only if it is listed on an exchange. Thus, it is the meeting place of the stock buyers and sellers. Bangladesh's premier stock exchanges are the Dhaka Stock Exchange and the Chittagong Stock Exchange.
THERE ARE TWO KINDS OF SHARE MARKETS – PRIMARY AND SECOND MARKETS.
This where a company gets registered to issue a certain amount of shares and raise money. This is also called getting listed in a stock exchange.
A company enters primary markets to raise capital. If the company is selling shares for the first time, it is called an Initial Public Offering (IPO). The company thus becomes public.
Once new securities have been sold in the primary market, these shares are traded in the secondary market. This is to offer a chance for investors to exit an investment and sell the shares. Secondary market transactions are referred to trades where one investor buys shares from another investor at the prevailing market price or at whatever price the two parties agree upon.
Normally, investors conduct such transactions using an intermediary such as a broker (like us: Midway Securities Ltd.), who facilitates the process.
HOW TO BUY SHARES?
First, you need to open a Beneficiary Account or BO Account. This BO account will be linked to our bank account where you will deposit your funds to facilitate smooth transfer of money and shares.
We offer various trading tools to buy and sell shares that caters to our diversified set of traders and investors :
Online trading: Want to take charge of your stock investing decisions? Our robust DSE Mobile trading system will help buy shares online with sheer ease and convenience. To buy shares, log in to your trading account using your User ID and Password.
Trader assisted trading: Looking for some guidance to buy a stock? This is an assisted trading service which will help you make an informed investment decision.
Call and Trade: Don’t have access to your laptop or computer. You can call us and buy shares over the phone.
WHAT ARE THE FINANCIAL INSTRUMENTS TRADED IN A STOCK MARKET?
Now that we have understood what a stock market is, let us understand the four key financial instruments that are traded:
The share market is another place for raising money. In exchange for the money, companies issue shares. Owning a share is akin to holding a portion of the company. These shares are then traded in the share market. Consider an example; your new project/business is successful and so, you want to expand it.
Now, you sell half of your company to your brother for Tk. 50,000. You put this transaction in writing – ‘my new company will issue 100 shares of stock. My brother will buy 50 shares for Tk. 50,000.' Thus, your brother has just bought 50% of the shares of stock of your company. He is now a shareholder. Suppose your brother immediately needs Tk. 50,000. He can sell the share in the secondary market and get the money. This may be more or less than Tk 50,000. For this reason, it is considered a riskier instrument.
Shares are thus, a certificate of ownership of a corporation. Thus, as a stockholder, you share a portion of the profit the company may make. As the company keeps doing better, your stocks will increase in value.
These are investment vehicles that allow you to indirectly invest in stocks or bonds. It pools money from a collection of investors, and then invests that sum in financial instruments. This is handled by a professional fund manager.
Every mutual fund scheme issues units, which have a certain value just like a share. When you invest, you thus become a unit-holder. When the instruments that the MF scheme invests in make money, as a unit-holder, you get money.
This is either through a rise in the value of the units or through the distribution of dividends – money to all unit-holders.
Companies need money to undertake projects. They then pay back using the money earned through the project. One way of raising funds is through bonds. When a company borrows from the bank in exchange for regular interest payments, it is called a loan. Similarly, when a company borrows from multiple investors in exchange for timely payments of interest, it is called a bond.
Thus, a bond is a means of investing money by lending to others. This is why it is called a debt instrument. When you invest in bonds, it will show the face value – the amount of money being borrowed, the coupon rate or yield – the interest rate that the borrower has to pay, the coupon or interest payments, and the deadline for paying the money back called as the maturity date.
Derivatives: (Coming Soon)
The value of financial instruments like shares keeps fluctuating. So, it is difficult to fix a particular price. Derivatives instruments come handy here.
These are instruments that help you trade in the future at a price that you fix today. Simply put, you enter into an agreement to either buy or sell a share or other instrument at a certain fixed price.
WHAT DOES THE BSEC DO?
Stock markets are risky. Hence, they need to be regulated to protect investors. The Bangladesh Securities and Exchange Commission (BSEC) is mandated to oversee the secondary and primary markets in Bangladesh since 1993 when the Government of Bangladesh established it as the regulatory body of stock markets.
BSEC has the responsibility of both development and regulation of the market. It regularly comes out with comprehensive regulatory measures aimed at ensuring that end investors benefit from safe and transparent dealings in securities.
Its basic objectives are:
• Protecting the interests of investors in stocks
• Promoting the development of the stock market
• Regulating the stock market
The Midway Team