Module 1 - part 2/4: What is the Stock Market?

June 19, 2024

What is the Stock Market? We break it down so that it's EASY to understand

Welcome to the EasyEquites FinMeUp Mentorship Program, where we make investing EASY for you. 

We have prepared six modules that we will post over the month of July.
The modules are intended to give beginner investors the necessary knowledge to start their investing journey.

Lets get right into it!

Module 1 - part 2/4: What is the Stock Market?

To make this simple, we will use the example of Thabo and his coffee store. 

Thabos coffee store has been doing an exceptional job and he has huge ambitions to expand. He tries going to the bank for a loan, however, he gets denied. 

Thabo has another option. He can take his coffee stand public and allow anyone to invest in his business. Investors can pay any amount, lets say R10, to own a share of his business.

This means that Thabo can put his investors money to use and open more coffee stores. This ultimately results in more profit. 

He can also use some of that money to develop new products or give money back to his investors (this is known as dividends). Giving some of the money to investors is optional and he does not have to do so.

Ethan, one of Thabos friends was sick on IPO day (Initial Public Offering - The day the shares become available to the public) and could not purchase shares originally.

 Ethan thinks that Thabos coffee store is a great business and decides to purchase shares from one of the original investors for double what they paid (R20). This is because Ethan believes that if Thabo can keep up the great work, he would be able to sell the shares even more in the future. 

BOOM! That is the stock market or at least a very simple version of it. It is people buying and selling small parts of companies (shares) based on what they think those shares will be worth in the future

Figure 1 [Refer to the image attached] is a simple illustration explaining how the stock market works and how investors make money by investing in the stock market:

The basic reason why shares go up and down is the law of supply and demand:
Share prices go up when there are more investors buying than selling 
Share prices go down when there a more investors selling than buying.

For centuries, the stock market has been used as a tool by the rich to build wealth. Only recently, investing has been democratized for the average person.

 Brokers such as EasyEquities have made this possible with ground-breaking technology known as fractionalized shares. This allows us to buy shares for as little as R1!

It is time for everyday South Africans to take matters into their own hands and start their investing journey. There is no excuse.

You can sign up to start your investing journey here, with a free R50 to get you started


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