Have you ever wondered how some people are always making money from trading in shares at the Nairobi Securities Exchange (NSE)?
The answer to this is probably yes.
But while you’d wish to make some of that money yourself, you do not know how to get started, leave alone start buying and selling.
Trading on the NSE is not the rocket science it looks like. For a start, you need to know the basics.
WHAT ARE SHARES?
A share is a unit 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. In order 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.
In most cases, the recommended selling price is that which will give you a minimum net profit of 10 per cent.
This is not the only way to make money from shares. You can also buy shares whose company pays out dividends, hold them for the long term and earn annual dividends.
There are a few things you will need before you can start buying and selling shares on the NSE.
The most critical will be the CDS account.
You will get this account free from a stock brokerage firm or investment bank that is licensed by the Capital Markets Authority.
The CDS account will work just like your normal bank account.
The only difference will be that 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 open 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.
At all times, 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 losses.
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. But currently, you will not be able to sell — even if the share rises — until three days have passed. This is due to the stock market rule known as T+3. Nonetheless, there are plans by the NSE to introduce same day transactions. You must also remember that the transactions you make will not be free. You will need to pay transaction fees, which will be automatically deducted.
CHOOSING THE RIGHT SHARES
The minimum number of shares you can buy is 100.
But before you buy a stock at the securities market, there are a few things you should look at.
These items will tell you how strong a company is and subsequently, how likely its shares are to appreciate in value.
Some of the things you should pay attention to 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.