To buy stocks online, one needs access to a reliable and secure online or mobile platform from a trusted licensed broker.
Online trading gives you the freedom to buy and sell shares from wherever you are in the world. Don’t miss a trade or be left behind.
The process of buying stocks online from the Nairobi Stock Exchange (NSE) is quite simple and won’t take much of your time. In order to get started here is a step-by-step guide on how to set up your online trading account.
Setting up an Online Trading Account
There are a lot of things to consider and here is a step-by-step guide on how to go about it:
Step 1: Identify the Shares You Would Like to Purchase
Trading in stocks allows you to make a profit by buying and selling shares and/or earning dividends. In order to be profitable in trading, you’ll need to rely on market timing, share mispricing and proper risk management on your part.
Therefore, to effectively identify the stocks to purchase, you must begin with conducting due diligence to pick the right stocks. Due diligence essentially entails undertaking comprehensive research before buying anything. Avoid the temptation of purchasing stocks based on hearsay or what is trending – master your emotions and be logical.
When selecting stocks, there are so many things to consider. The most common indicators that investors use to are: the company’s revenues, and profits – particularly by taking a closer look at the price-to-book ratio, price-to-earnings ratio, price-to-sales revenue ratios, debt-to-equity ratio and the balance sheet, particularly focusing on the level of debt and assets. These measures are then compared to the competitors to give you some perspective of how the company fairs within its industry.
Noteworthy Indicators to Consider
Here are a few noteworthy indicators to take into consideration when determining the shares you would like to purchase:
A. Earnings. Look at the company’s post-year-to-year growth in earnings, and compare its profitability against its major industry rivals. Ensure that the company is substantially performing better than its industry rivals.
B. Free Cashflow. A strong company will generate a large flow of free cash as a measure of its health. Without cash, a company cannot last long. Many companies have failed simply because cash was in short supply. Therefore, use cash flow ratios to gauge if the company is overvalued or undervalued, over the price-to-earnings ratio.
C. Return to Assets. Tells you how well the company is using its assets to create value for its owners. A strong company will have a superior return on assets in its industry.
D. Return on Equity. Since many companies use debt to run their businesses, it is essential that you consider the return on equity. Return on equity considers how a company is using its investors’ capital and debt to generate profits. If the ROE is higher than its rivals in the sector, dig deeper to make sure that the numbers have not been boosted by figures from recent acquisitions, stock buybacks etc.
E. Net Margins. Net margin is simply net income divided by sales and serves as an indicator of how efficient that company is at generating profits out of sales.
Other indicators to Consider
Beyond the financials, as an investor, you’ll need to also study the price movement of the shares you want to purchase and also their market capitalization. The change in price will give you an indication of the perception of the market to the share. On the other hand, market capitalization will help you understand the size of the company, measures its worth in the open market and gauge the market perception of its future prospects.
Many people also tend to forget to study company management. This is vital, especially if you are looking to invest long-term. The ownership structure and management of the company, reveal the distribution of power among the various shareholders, potential shareholders and also management.
Finally, understand the economy in which the company operates and the specific industry of the company shares you are looking to invest in and their rivals within the industry. Take note of how the company fares in its industry and also how the general economy is doing as well. While studying financials, take note of the occasional hiccups and how they have affected the company.
These things, collectively, will give you a general sense of the direction of the company, ergo its valuation in the future. Profitability reflects in stock price and stock dividends payout, while valuation balances profitability against risk.
All in all, before making any share purchase, ensure that you’ve nailed down your investment goals are (i.e. identify if you want to earn dividends or gain in share value), then find stocks that will help you meet that goal and devise a trading plan for once you have your online trading account set up.
Learn More: How to Make Millions in Stocks
Step 2: Find a Reliable Licensed Broker with an Online Platform
To set up your online or mobile trading portal, you will need to open an account with a licensed stockbroker. There are quite a number of brokers in Kenya with online platforms. It is important to identify a licensed and reliable broker.
Things to Consider when Selecting a Broker:
Licensing
There is a wide range of licenced brokers that offer online and mobile trading platforms. Here’s a list of brokers that offer online and mobile trading platforms currently:
Online Trading
Mobile Trading
- AIB – AXYS Africa Limited – Android | iOS
- Dyer & Blair – Android | iOS
- EFG Hermes Kenya Limited – Android | iOS
- Faida Investment Bank – Android | iOS
- Genghis Capital – Android | iOS
- NCBA Investment Bank Limited – Android | iOS
- Sterling Capital Limited – Android | iOS
Get the updated list here: NSE Website.
Fees, Restrictions & Commissions
Fees, restrictions, and commission fees are important factors to consider when picking a broker. Over there years, a lot of changes have taken place with regard to how much it costs to buy shares. For active traders, it could be a make-or-break decision for your account. Without careful consideration of fees, stockbrokers could wipe out your profits with each trade. The majority of Kenyan stockbrokers charge an account opening fee or account maintenance fee and sometimes a combination of both. These fees vary from broker to broker depending on the level of service – to ensure you get the best value for your money. However, typically stockbrokers charge about KES 1,200 to open the account and KES 100 per month to keep your account active.
Restrictions on trading accounts are not uncommon. However, the good news is that Kenyan stockbrokers do not require a minimum amount to fund the account but offer restrictions to the manner of purchase of stocks in 100 share lots. Hence, you can only buy a minimum of 100 shares at any given time.
Commission fees are standard practice in trading and your stockbroker will charge commission and perhaps other additional fees on every trade you execute. In 2020, upon the assertion of the Tax Law Amendment Act of 2020, the cost of investing in securities at the NSE went up. When purchasing shares, the amount now includes purchase price, brokerage commission fees, statutory levies plus value-added tax (VAT). As for the sale of shares, proceeds from a sale are paid net brokerage commission fees, statutory levies plus VAT.
Chargeable Commissions
The good news is that there have been some limits to the chargeable commission rates on trades.
For equities, the chargeable commissions are as follows:
- The highest commission chargeable is 1.78% for transactions that amount up to Ksh 100,000
- Anything above Ksh 100,000 is fully negotiable and is subject to a maximum of 1.5%.
For bonds, the chargeable commissions are as follows:
- 0.0625% commission of the value of transactions on amounts up to Ksh 50 Million
- Anything above Ksh 50 Million, is fully negotiable.
Service Reliability
Service reliability is essential for online trading platforms. Some of the common issues include time to execute transactions, market research information and a friendly/easy-to-use interface. A great broker should execute your trades in the shortest time possible and should also provide you with research information on stock performance.
Advisory Services
Nowadays, it is imperative to select a knowledgeable stockbroker that will provide you with the information you need to make money trading online. A broker needs to be transparent in the way they conduct business and their transaction fees. Additionally, ensure that your broker state employs a state of security system that encrypts and secures your personal information from rogue agents.
Beware of scammer brokers that aren’t transparent and charge exorbitant fees.
Step 3: Gather the Documents You Will Require
In order to trade securities, you’ll need to first open a Central Depository System commonly known as a CD account with the Central Depository and Settlement Corporations (CDSC). It is an electronic account, specifically designed to store all of the shares you own and keep a record of the transaction. The role of the CDSC is to ensure that trades are paid off.
In one swoop, you can open a CDS account and an online trading account through the above brokers. Or alternatively, open a CDS account at a bank, Central Bank or a local central depository agent, then present your CDS account number to your broker.
You’ll need to provide the following documents to facilitate the account opening process:
- Two recently taken passport-sized photographs (Colored)
- Original National ID or Passport (for a company or organization, an original certificate of incorporation or certificate of registration and Directors’ IDs and passport-sized photographs)
- KRA PIN Certificate
- Duly completed CDS 1 FORM
You may also be asked to present additional documentation i.e.
1. Evidence of residence, such as a copy of a recent utility bill
2. Evidence of income such as bank statement or payslip
For more information, please read through the FAQs regarding CDS accounts on the CDSC Kenya website.
NOTE:
Some brokers may charge an account opening fee. Thus, it is important to compare brokers in order to gain an understanding of their service offerings and strengths. Choose one that you are comfortable with and that meets your trading needs.
Step 4: Open a CDs Account & Get your Login Credentials
If you choose to open a CDS account through a broker, upon presenting the above documents, your stockbroker will embark on opening a CDS account.
Upon being issued your CD’s account number, your broker will then provide you with further details. For instance, how to fund the account and perhaps your login details. Most brokers allow for M-Pesa or direct deposit at selected banks as accepted methods to fund your account.
With your CD’s account number, funded account and password on hand, you can now log in to your account and begin trading.
Step 5: Determine How Much Money You Need to Start Trading
The amount of money you need to start trading depends on you. If you have a well-thought-out trading plan, then this will be easy. Don’t rush into it if this is your first time. First, try to learn and understand the trading platform you are using. Consider starting small – trade the minimum allowed by your broker or target asset. By doing so, you’ll get to learn the platform, understand the market, readjust your plan given this new information and minimize losses.
In your calculations, take note of commission fees and monthly account maintenance fees (charged by some brokers).
i.e. If in every transaction you must purchase at least 100 shares, means if you are purchasing Safaricom Limited shares at Ksh 30 per share, this means you’ll pay a minimum of Ksh 3,055.50 (Brokerage fee 1.85% + price of 100 shares) to purchase 100 shares of Safaricom Limited.
Learn more: What is the Minimum Amount to Invest in Nairobi Stock Exchange?
Final Thoughts
Aside from the real-time access to market prices and market information that these platforms provide, online trading platforms offer access to the market from anywhere in the world, 24 hours a day. Ensuring that you can buy stocks online from anywhere and make money.
True freedom is made of things like these.
Happy Investing!
Disclosure: This information is provided to you as a resource for informational purposes only.