Equity Shares Trading

Buy and Sell shares on NSE

STOCK MARKET

Its a financial market where investors buy and sell financial securities, most commonly ,equity shares of publicly listed companies

An equity share is a unit of ownership in a company. The stock market provides investment income to investors who purchase stocks. Investment income can be through dividends and share appreciation (capital gains)or both. Also, the market provides capital income is companies through insurance of shares.

Public listed companies trade shares on stock exchanges. Examples of stock exchanges: Nairobi stock exchange (NSE). Uganda securities exchange. Nigerian stock exchange.

HOW TO TRADE SHARES ON NAIROBI STOCK EXCHANGE

Nairobi stock exchange is based in Kenya, it was founded in 1954.NSE operates under the supervision of Capital Market Authority of Kenya (CMA).

To trade shares on NSE, an investor requires:

(1) A trading account (CDS account). – A CDS account enables investors to hold or transfer shares traded at NSE. How to open a CDS account, CDSC.

(2) Stock broker. – Stock brokers have an in-depth knowledge of the stock market. -Choose a broker who has a positive review from investors and offers attractive trading fee.

A list of brokers in Kenya, N.S.E listed brokers

(3) Money. -How much money does an investor require to start trading on NSE? -The minimum number of shares per counter an investor can trade is 100.(ET NORMAL) and 1 share (ET ODD)

Example 1:

Buy Standard Chartered Bank (SCB) shares on 09/04/21 *Share price =142.75ksh and brokerage fee=2% To buy 100 shares of SCB, = (142.75*100) +broker’s fee =1427.5+2% fees =1427.5*1.02= Ksh 1,456.05.

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Example 2:

Buy Ken Gen shares on 09/04/21. *Share price=4.54ksh and brokerage fee=2%(estimate) To buy 100 shares of Ken Gen = (4.54*100) =2% brokers fee =454*1.02 =ksh 463.08.

Conclusion

-Therefore, the amount of money an investor needs to start trading is determined by: Number of shares to be purchased (minimum is 100 shares) and brokerage fee/commission.

What is brokerage fee?

Brokerage fee is the amount an investor is charged by a broker to execute specialized services .The services can either be advisory or transactional.

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Trading Strategies: Long Trading vs Short Trading

TRADING STRATEGIES

Long Trading

Involves buying an equity stock at a lower price and selling it a higher price. The exit action here is to sell the equity share(s) at a higher price to make a PROFIT.

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For example: Buy 100 shares of X at Ksh 20, hold and sell when the shares when the price goes up to Ksh25. In this case, the profit will be; 100 shares * Ksh (25-20) = Ksh 500 (before commissions). Long trading is also referred to as "Going long”,"Buying Long". Going Long on stock is profitable when the share price of a stock is rising.

Short Trading

In short trading an investor borrows equity stock (from the broker) and sells it . The exit action is to buy back the equity stock at a lower price (make a profit) and give it back to the broker.

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Short trading example.

An investor borrows 100 shares of X when the price Ksh 15 and sell immediately. Investor receives Ksh 1500 in their account. The Investor's account will reflect negative 100 shares (which will need to be returned to the broker). The investor exit action will be to repurchase the shares at lower price (less than ksh 15), let’s say ksh 10....

short trading example.

If the investor buys back 100 shares of X at Ksh 10 per share, he will pay Ksh 1000. That means, the profit is Ksh 500 before broker's fee. Short trading is also known as "Going short"," Shorting a stock". Going short is profitable when the share price of a stock falls.

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WEBSITE : NAIROBI STOCK EXCHANGE