Would you like to start stock trading in Kenya? However, you do not know where to get started. If you do, you are not alone. Most people do not have the skill and knowledge of how to get started.
They put it off thinking it is out of reach for them which is not the case. This article is going to show you the ropes in stock trading in Kenya.
What is Nairobi Securities Exchange NSE?
The NSE stands for the Nairobi Securities Exchange. It was founded in 1954 and is the market place of buying and selling stocks in Kenya.
It has 66 companies listed on the stock exchange. These companies come from 11 sectors in the economy which include agricultural, automobile, banking, commercial and services, construction and allied energy and petroleum, insurance, and investment.
What is stock trading?
This is the buying and selling of stocks to earn a profit. However, the amount of profit will depend on timing, risk, and stock pricing.
So, how do you make a profit using timing? Firstly, you have to strategize when to buy. The secret is to buy when the market is fluctuating, and sell when the market is gaining.
On the other hand, to make profits on stock pricing, you have to buy a stock that is lower than its fundamental price. Consequently, when it gains its market price, you can sell it off and make a profit.
Finally, to make a profit you have to assess the risk. A company with good industry practice and management is less risker, compared to one with issues in operation and management. Therefore, becoming much easier to make profits with less risky companies
How to get started
Step 1: Figure out which assets to invest in
To get things going, you will have to decide which assets you want to invest in. And for this, you will need to do a fundamental and technical analysis.
This involves looking at the management of the company, its market and industry position, and overall financial performance.
By doing a fundamental analysis you will be able to determine whether a stock is overpriced or underpriced.
After doing a fundamental analysis you then need to do technical analysis. For this, you will have to analyze the stock’s price movement. This is best done by analyzing charts, patterns, and graphs which will help you predict future prices of the stocks.
However, this method of analysis is only advantageous in short term trading.
To make the best investment decision, it is wise to combine both fundamental analysis and technical analysis before investing.
Step 2: Choose your securities wisely
The NSE has a variety of securities you can trade-in. They include stocks, bonds, derivatives, exchange-traded funds, and real estate trusts. So, if you are starting you have different options to choose from.
Here is a breakdown of these securities
They are fractional ownership of a company. Being the case, it allows ordinary people to have a portion of ownership of a company.
Therefore, when you buy stocks and their prices appreciate you can sell them for a profit. And in case they lose their value you bear the loss.
This is a loan to a company or government which is paid back with a fixed interest rate. They are less risky compared to stocks and are good to balance out a portfolio. However, they have a low return on investment
Exchange-Traded Funds are an aggregate of stocks, bonds, and commodities. They have stock-like features; however, they are more stable since they track an index.
Furthermore, they are tax-efficient compared to shares and are exempted from capital gains tax.
Real Estate Investment Trust just like the name intimate invest in real estate. They operate like ETF, however exclusively in the real estate.
Step 3: Choose a broker
To start investing in stocks you will need a stockbroker. This is a professional who buys and sells stocks on your behalf.
There are various stock brokerage companies you can choose from. To make your pick, research on their expertise, trading fees, and services provided.
Lastly, ensure they are registered with the NSE. You can have a look at this link on licensed stockbrokers in the country.
Step 4: Open a trading account
You will need to open a Central Depository Account to start trading in stocks on the NSE. It acts like a bank account and holds your stocks.
You can open one directly with the Central Bank of Kenya or through an authorized local central depository agent which includes licensed stock brokers.
To open a CDS account you will need:
- Two-color passport-sized photographs
- KRA pin
- National ID or passport
- Evidence of residence and
- Evidence of income (payslip or bank statement)
Step 5: Choosing the stocks
Once you have opened your CDS account, you can then transfer money to your account. From there you can choose the stocks you want to trade-in.
At this point, you need to be clear on your strategy. Are you in it for the short term or long term? If you are planning on a long term strategy, you can buy stocks at a low price in anticipation of gaining in the long run.
On the other hand, for a short term strategy, you buy low with the anticipation to make a quick return in not more than 3 months.
So, how much do you need to buy? The minimum amount of shares you can buy is usually 100. So, if you want to buy Safaricom shares you will multiply the share price by 100. So, if the share price for Safaricom is Ksh 27 you will spend 27*100 which is Ksh 2700 for your shares.
There are many ways to create and grow wealth. And one of them is through stock trading.
Unfortunately, many Kenyans shy away from it because they the lack knowledge and skill. However, it does not have to be the case. With the above steps, you can set yourself up and start making money through stock trading in Kenya.
Do you want to learn more on stock trading. email@example.com