If you are looking for a new income stream or want to invest but do not have much capital at your disposal, equities trading can be a solution for you. In Kenya, buying and selling shares of NSE companies couldn’t be easier. Not only is there a wide number of licensed brokers through whom orders can be channeled, signing up for a CDSC (Central Depository and Settlement Corporation) account is easy, and doesn’t require you to be present physically. Furthermore, the minimum initial investment is 100 shares, so if you choose prudently, you can start with a modest capital. The introduction of day trading to the NSE also increases the opportunities to earn from equities trading.
Regardless of how promising it appears, there are a number of questions you should ask yourself before venturing into it:
- Do you know how markets work?
Going in blind is a sure recipe for disaster. Thus, a basic understanding of the stock markets, common terminologies used, and the factors that affect share price will be necessary if you want to be successful. You will also need to know how to interpret the trends you observe before reacting to them.
- Have you defined your investment philosophy?
An investment philosophy is a set of principles that will guide your trading decisions. Ideally, it should take into account your goals, risk appetite, the length of time for which you intend to invest and the return you hope to achieve. Your investment philosophy will be completely up to you. Some people choose to focus on shares that they believe are underpriced. Others may instead only target companies in their growth or expansion phase. Yet others may only choose stocks that provide an interest income. Whichever one you choose, ensure first that it fits within your investment philosophy.
- Do you understand your personal risk tolerance?
Do not wait until you are faced with a potential loss to realize that you have invested in stock whose risk is higher than you can stomach. Know your tolerance beforehand and let that guide your investment decisions. You can either have a high, moderate or low risk appetite.
- Have you accounted for costs in your portfolio?
It is easy to focus on the potential returns and forget about associated costs. Did you know that your broker is entitled to a certain percentage of each transaction they conduct on your behalf? There are also taxes to consider as well as mobile money transaction costs if you choose it as a payment option.
- Have you devised a method for measuring success/failure?
What will you do if a certain company’s share price plunges by more than 50%? If it is climbing, at what point will you exit? You need clear cut metrics to define the success or failure of your portfolio. This will help you minimize losses while also protecting any earnings you make. It will also easen your decision making and ensure you are not always just reacting.
In summary, trading shares in the stock markets can offer a new stream of income. It is also easy and accessible. However, before engaging in it, you need to ask yourself a few basic questions to increase your chances of success.
Interested in trading NSE shares? Contact us and apply for your CDSC account today.