Gary Booysen from out of nowhere in injury time...

Dear Investment Academy reader,

The markets are driven in the short-term by investor sentiment, but there’s nothing new in telling you that. We can’t ignore the fundamentals, which are at the root of it, but if real activity is what secures the economic tree to the soil then investor sentiment are leaves blowing in the wind. Your stockbroker has the markets under close surveillance and is your window to investing success.

Online vs. telephone trading

Before we go any further, it’s important you understand that it’s not possible for you to trade directly on the JSE. Though some trading websites may give you the impression that you’re directly purchasing shares, the fact is the site itself is the intermediary. The JSE is subject to various regulations as laid down by the SSA (Securities Services Act). These rules, designed to protect you from unscrupulous behaviour, force the public to trade through the services of a broker or stock broking firm.

However, many firms nowadays offer online services, but there’s still no substitute for building a relationship with your broker. Stockbrokers deal with the markets day in and day out and possess real time up to the minute advice. Though doing your own research is essential to your trading success, your broker provides an extra set of eyes and ears on the ground. He’ll often have heard last minute news or rumours that, more often than not, will throw a new perspective on your investment analysis.

Keeping down costs

In the end, knowing the intrinsic costs is incredibly important. You are, after all, trying to make as much money as possible from your investments. Keeping costs down is important, especially if you’re working with a smaller amount of capital.

Most brokers charge two types of fees: A fixed fee to hold the account and a commission on trades placed. It’s important when working with a smaller amount of capital that you’re aware of the fixed costs, since as a percentage they increase as your capital gets smaller. Fixed fees can often be waived if you place enough trades every month. Commission, also known as brokerage, is calculated on the value of the shares involved in the transaction. Most brokers charge a basic transaction cost, plus a sliding scale commission amount.

The final charges you need to be aware of are Market Securities Tax (MST), STRATE fees, the Insider Protection Levy (IPL) and, the old favourite, VAT.

Remember, other than MST (which only gets charged on the buy leg), you’ll be charged all fees on both the buy and sell legs of your transaction. To avoid rookie investing mistakes, Fear, Greed and the Stock Market written by MoneyWeek editor Gareth Stokes, is worth a read.

You have to bear in mind, this business is all about knowledge and relationships. Understanding is vital to you surviving the lucrative world of stock market investing.

Happy investing!

Gary Booysen

For the Investment Academy