How To Buy Shares On The Nairobi Stock Exchange

Navigating the world of stocks and shares might seem daunting, especially if you're new to investing. Fortunately, buying shares on the Nairobi Stock Exchange (NSE) has become more straightforward and accessible thanks to digital platforms and tools. From understanding what claims to buy and finding a reliable broker to setting up an online trading account, we've covered you in this easy-to-follow guide.

Understanding the Shares You Want to Buy 

You must identify the shares you want to buy to start your journey into the stock market. This decision should be guided by thorough due diligence, which involves detailed research and analysis rather than rumors or trends. A wide range of indicators should be considered, including:

Financial Performance 

Examine the company's financial statements to understand its revenue, profit, and financial health. Key metrics include price-to-earnings, debt-to-equity, and balance sheet data. This gives you insight into the company's overall performance and its standing within the industry.

Company Health 

Evaluate the company's health using earnings growth, free cash flow, return on assets, return on equity, and net margins. These indicators help you understand how well the company performs relative to its rivals.

Market Capitalization and Share Price Movement 

Examine the company's market capitalization and the historical movement of its share price. These indicators give you an idea of the company's size, worth, and market perception of its prospects.

Company Management 

Scrutinize the company's management and ownership structure. This information is crucial, especially for long-term investments, as it gives insight into the company's power distribution and decision-making.

Finding a Reliable Licensed Broker

Your next step is to find a reliable licensed broker with an online trading platform. Here are some things to consider:

Licensing 

Ensure your selected broker is licensed to operate. Some licensed brokers that offer online and mobile trading platforms in Kenya include ABC Capital, AIB-AXYS Africa Limited, and Faida Investment Bank, among others.

Fees, Restrictions, and Commissions

Be aware of the costs of buying shares, such as account opening fees, monthly maintenance fees, and trading commissions. Each broker sets prices, so compare them to find the most affordable option.

Service Reliability 

Your chosen broker should provide a reliable online trading platform. This means prompt execution of trades, comprehensive market research information, and an easy-to-use interface.

Advisory Services 

A good broker should also offer sound financial advice and be transparent about their operations and transaction fees. The broker's security measures are equally essential to ensure the safety of your personal information.

Opening a Central Depository System Account 

You must open a Central Depository System (CDS) account to trade securities on the NSE. This electronic account records the shares you own and your transaction history.

Required Documents 

To open a CDS account, you'll need two recent passport-sized photos, your National ID or Passport, a KRA PIN Certificate, and a duly completed CDS 1 FORM. You may also be required to provide proof of residence and income.

Getting Started with Trading

Once your CDS account is active, you can commence trading on the NSE. The process generally involves:

Understanding the Trading Process 

Educate yourself about the buying and selling process. You will typically need to give your broker a buy or sell order, which details the type of stock and the number of shares you want to transact. Remember, the NSE operates on a 'T+3' settlement system, meaning transactions are settled three days after the trade date.

Analyzing Market Trends

Learn how to analyze market trends. Keeping a close eye on the movement of shares on the NSE can help you make informed decisions. Various news outlets, financial reports, and online platforms offer insights into these trends.

Placing Your Order 

Once you decide on the shares to buy, you can order through the broker's online trading platform. The platform should provide real-time data on the stock market, including current prices and market depth.

Settlement and Confirmation

Upon completing the trading session, your broker will confirm your transaction. Remember, with the 'T+3' system, you will receive your shares or the proceeds from a sale three days after the transaction.

Keeping Track of Your Investments

Consistently monitoring your investments is crucial. You should review your portfolio regularly and adjust your investments based on your financial goals and market conditions.

Using Your CDS Account

You can monitor your holdings and transactions through your CDS account. Most brokers provide online access to your CDS account, making it easy to keep track of your investments.

Staying Informed

Follow news and updates about the companies in your portfolio. Be aware of market developments, such as company announcements, economic indicators, and other factors affecting your investments.

Taking Advantage of Corporate Actions 

Corporate actions, such as dividends, rights, and bonus issues, can significantly impact your returns. Keep an eye out for these and decide whether you want to participate.

READ ALSO: 10 Best Construction Companies in Kenya

Conclusion 

Investing in the Nairobi Stock Exchange can be rewarding if undertaken wisely. This comprehensive guide has outlined the critical steps to buying shares on the NSE. Remember, while the potential for high returns is appealing, investing in stocks also comes with risks. It's essential to conduct thorough research, understand your risk tolerance, and have a clear investment strategy. Above all, patience and consistency are critical to successful investing.

FAQs 

What is the Nairobi Stock Exchange?

The Nairobi Stock Exchange, now known as the Nairobi Securities Exchange, is the leading securities exchange in East Africa. It offers a platform for buying and selling shares, bonds, and other securities.

How can I open a Central Depository System account?

To open a CDS account, you must provide two recent passport-sized photos, your National ID or Passport, a KRA PIN Certificate, and a duly completed CDS 1 Form. Some brokers may also require proof of residence and income.

How do I choose a reliable broker?

Choose a licensed broker with an affordable fee structure, reliable service, and sound financial advice. Examples include ABC Capital, AIB-AXYS Africa Limited, and Faida Investment Bank.

What is a 'T+3' settlement system?

A 'T+3' settlement system means transactions are settled three days after the trade date. This is the period within which the buyer must pay for their securities, and the seller delivers them.

How can I track the performance of my investments?

You can monitor your investments through your CDS account, which records your shares and transactions. Additionally, staying updated with news and updates about the companies in your portfolio can help you track your investments.

What are corporate actions?

Corporate actions are decisions taken by a company's board of directors that could impact the company and its shareholders. These include dividends, rights issues, and bonus issues. As a shareholder, staying informed about these actions is essential as they can significantly impact your investment returns.

Disclaimer!!!

The information in this article is intended for educational purposes only and does not constitute investment advice. The reader should always conduct their research and consider their financial situation before making investment decisions. Investing in the stock market involves risk, including the risk of loss.