This archive report was first published on 5 November 2019.
Are you interested in making money from trading in shares at the Nairobi Securities Exchange (NSE)? While it may seem like rocket science, trading on the NSE is actually quite straightforward. To get started, you need to know the basics.
Published on November 5, 2019.
Shares are units of ownership interest in a particular company or a tiny fraction of a company. In this case, this unit will be of a company that is listed and trading on the Nairobi Securities Exchange. For example, it could be Safaricom or KCB shares. To make money from these shares, you will need to buy them at a discounted or fair price, and sell them at a price that is higher than your buying price.
One way to make money from shares is to buy them at a low price and sell them at a higher price, earning a minimum net profit of 10 per cent. Another way is to buy shares whose company pays out dividends, hold them for the long term, and earn annual dividends.
To start buying and selling shares on the NSE, you will need a CDS account. This account will work just like your normal bank account, but instead of storing and transacting money, it will store and transact shares. To open a CDS account, you will need to produce a copy of your PIN Certificate from the Kenya Revenue Authority, your National ID or Passport, Original Certificate of Incorporation (For companies), and two recent passport size photos.
Once you have opened a CDS account, you will need to identify the shares you want, their trading price, and mark your entry point. You will then deposit money into your account with your stockbroker, and give written permission for the shares to be bought at a specified price. If your stockbroker has an online trading platform, you may opt to buy the shares yourself without the stockbroker’s assistance.
When buying shares, your buying price must not be higher than the market price which the share you’re buying is trading at. It is always wise to trade in consultation with a professional stockbroker if you’re a new trader. He or she must be able to guide you on the best buying and selling prices to avoid making loses.
Once a buying order has been placed in the market successfully, the amount of shares you have purchased will reflect in your CDS account immediately the transaction goes through. However, you will not be able to sell – even if the share rises – until three days have passed, due to the stock market rule known as T+3. Nonetheless, there are plans by the NSE to introduce same day transactions.
When choosing the right shares on the NSE, there are a few things you should look at. These include the company’s management, its growth plans and strategies, its financial reports – which must include net earnings, debt levels, sales, and operating profit – the share volatility or rate at which the share price moves up and down, the share’s dividend yields, and the price-earnings ratio – which measures the company’s value, competitiveness, and cash flow.
