When you buy shares you buy part of a company. As a shareholder in the company you may be paid a dividend on your shares. You might also be able to sell the shares later. If you sell for more than you paid for them you make a capital gain on your investment. Of course, there is a risk that the value of the shares may fall.
When a company wants to raise money to develop or expand it can list on a stock exchange, such as the New Zealand Exchange (NZX). When you buy shares in that company you contribute some of the money the company wants in exchange for those shares.
To buy shares in New Zealand and overseas companies that are traded
on a stock exchange you need a sharebroker. Companies that are listed
on an exchange, and brokers who are "market participants"
(i.e. are registered with the exchange) have to comply with the rules
of the exchange. This provides some protection for shareholders.
A sharebroker charges brokerage when you buy shares. This may be a proportion of the amount you spend or it may be a flat fee for each trade.
Some brokers provide research and analysis and advice as well as
trading your shares. Others provide a trading service only. You can
find sharebrokers listed in the Yellow Pages and under Market
Participants at www.nzx.com.
Share prices rise and fall over time so you will lose money if you
sell when the price is lower than the price you paid for the shares.
The current price of listed shares is readily available on the internet
at www.nzx.com and in the newspapers. This allows you to watch and see
how share prices change over time.
You can buy shares in companies that are not listed on the New Zealand Exchange (NZX) or an overseas exchange.
If the shares are not traded on an exchange it is likely to be
harder to sell your shares. Also the companies and trading activity are
not subject to rules that protect investors (like insider trading and continuous disclosure laws).
Can I get my money back?
Shares that are listed on a stock exchange can be sold at any time provided there are buyers for the particular company's shares. Whether you sell at a gain or a loss depends on the price you paid for the shares and the price they are trading at when you want to sell.
Shares that are not listed on a stock exchange may be harder to sell because there may not be a buyer when you want to sell.
This article was provided by the Securities Commission.
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