Management

How to Invest in Stocks for Beginners With Little Money

Investing at the NSE is easy for both local and foreign investors.

Updated on

January 22, 2020

Stock market analysis. — Stocks offer great opportunities to grow your money. PHOTO | CK

The Nairobi Securities Exchange (NSE) lists about 65 Kenyan companies and one Ugandan company from which investors can buy and/or sell stocks, making it the most vibrant exchange in East Africa.

There are two ways of making gains at the NSE. The first one involves selling stocks at a higher price than the buying price while the second one is where the company shares its profits by paying dividends to its shareholders.

How to invest in stocks for beginners with little money is a popular query among individuals interested in investing in stocks and bonds in Kenya.

This article seeks to guide beginners on how to trade in securities while demonstrating how investing in stocks and bonds in Kenya is an easy, fast and straightforward process for both local and foreign investors.

Where to start

As in any other investment, the first step before committing your hard earned cash should be to do some due diligence.

This involves doing a comprehensive research on the market trends, the size of a company, its profit margins, balance sheet, and its stock price history and future outlook among others.

It is also important to analyze any risks for the company or the industry.

Most of the firms listed at the NSE have websites where all the above details and several investor guides can be viewed or downloaded. You can also visit the NSE website for live and historical data on the listed companies.

After analysis and choosing a company to invest in, the next step should be to identify a licensed brokerage firm.

Besides making transactions on your behalf at a fee, stock brokers offer great insights in step one above therefore it is crucial to share your findings and listen carefully to their opinion.

Stockbroker

Beginners in Kenya are advised to pick a broker that offers an online trading platform since it allows them to sell or buy shares anywhere and at any time.

There is a standard commission /fee which a broker can charge for trades usually regulated by Capital Markets Authority (CMA).

The fees for trades below Sh100, 000 are capped at 1.78 per cent of the total value traded while amounts above Sh100, 000 are topped at 1.50 per cent. It is possible to negotiate for lower rates when trading in large volumes.

CDSC account

The third step involves opening a Central Deposit and Settlement Corporation (CDSC) account. This is a portal which electronically stores and eases buying and selling investors’ securities across the Nairobi Securities Exchange.

In order to open a CDS account, you are required to fill a CDS 1 form and present a copy of your original national id, two color passport size photos and a copy of the KRA pin certificate to the broker you have chosen.

With proper documentation, the account is activated instantly and an investor can start making buy and sell orders.

Although investors are allowed to have multiple accounts and separately trade in each of them, you can only have one account with each agent.

There is no a minimum amount of money that you can invest in the NSE but the set minimum trade size is 100 shares of any listed company.

It is also important to open a bank account since the industry regulations dictate that dividends should be deposited in a bank account and not the trading account.

All bought shares are credited instantly to the CDS account, while money obtained from the sale of your shares is credited into your bank account.

The Nairobi Securities Exchange is open from Monday to Friday between 9:00 am and 3:00pm local time except on public holidays.