The stock market can be a highway that leads many investors and traders to a plethora of opportunities for the creation and maintenance of long-term wealth. However, to become profitable in trading and investing in shares, beginners must go through the process of becoming experienced retail investors and traders.
Stock trading refers to the buying and selling of shares in the secondary market, such as the Nairobi Securities Exchange (NSE) on the same day, with the primary market referring to the central place where companies issue new securities that they offer to the public, in the form of shares and stocks.
When investing in shares, investors typically buy and hold shares for a certain time, with the expectation that they will appreciate and provide a return on investment. Investors can also earn passive income through capital gains and dividends paid by the companies of which they are shareholders.
The Nairobi Securities Exchange
The Nairobi Securities Exchange (NSE) is the market dealer which offers an organized, regulated trading platform where financial instruments of companies that are publically listed can be bought and sold.
The NSE was established in 1954 as the Nairobi Stock Exchange and it is currently based in Nairobi, Kenya. Several indices form part of NSE, including:
- NSE 20 Share Index, which is the top 20 performing companies under a specific review year.
- NSE 25 Share Index, which is developed to represent the performance of Kenyan companies which are listed on the NSE.
- NSE All-Share Index (NASI)
- FTSE NSE Indices
READ MORE: How to buy shares in Kenya
How to start trading shares on NSE
To start trading, beginners must conduct a technical and fundamental analysis to identify the best shares to buy on NSE, according to the company’s information and the performance of the stock itself.
Once this is done, the trader can choose the shares that fit their trading style, unique investment needs and objectives, and unique risk profile.
To start trading in NSE, the traders and investors alike must use the services of a stockbroker to facilitate the trade. To select the right broker, the trader must conduct an in-depth comparison of brokers that accommodate Kenyan traders.
Once the trader has found the right broker to facilitate their trade/investment, they can register a demo account to practice trading and to inspect the offering of the broker before they register a live trading account.
Before registering a live trading account with a stockbroker, all investors and traders must register a Central Depository System (CDS) account, which is an account in which shares are held.
The Central Depository and Settlement Corporation (CDSC) acts as an intermediary that ensures that all transactions are settled and paid out accordingly.
Once this is complete, a trading account can be registered with a stockbroker and the account can be funded with enough capital to purchase shares. Next, the trader/investor can decide on their market position as per their trading strategy or plan.
If the trader believes a share will appreciate, they can enter a buy/long position, allowing them to sell the share at a higher price. If they believe a share will depreciate, they can enter a sell/short position, allowing them to buy the share back at a lower price.