THE STOCK MARKET
GETTING STARTED ON THE STOCK MARKET
Stocks can be bought and sold by anyone who has money. Knowing the basics will help you understand how stock trading works. People who have knowledge about stock trading are the ones who are most likely to be successful in the investment industry.
Most stock trading activities are done through an intermediary called a stock broker. Brokers take and execute orders from the investors and also offer investment advice and analyses for their client.
- Finding a stock: This is the most obvious and most difficult step in stock trading. With a wide variety of stocks to trade in, a good guideline is to consider first in which sector you wish to trade in. Once you have decided in which sector you want to invest in, you can then commence to start researching for a stock.
- Fundamental Analysis: A lot of short term traders might argue with the need to do any Fundamental Analysis at all, however knowing the stocks past history and the latest up to date news regarding the stocks past history and the latest up to date news regarding the stock can be very crucial.
- Technical Analysis: This is the part where the indicators play a part, volume, moving averages, relative strength index, support levels, resistance levels and all the rest. Whichever batch of indicators you choose whether they are lagging or leading, may entirely hinge on where you get the information from. Your stock broker will guide you on the relevant technical analysis data.
- Follow your choices: Once you have committed to a couple of traders you should then start to manage them properly. For instance, if the stock is meant to be a short term trade you would then obviously be watching it more closely. For your exit signals. If it’s a longer term yrade then offcourse you need to set up different time frames such as weekly or monthly checkups on the stock. This effectively frees you up and gives you more time to do other things. You can use this time wisely for keeping up to date with the news, determining your price targets, set stop loses, and keeping an eye on other stocks that you may want to purchase in the future.
- Keeping an eye on the bigger picture: This is best achieved by following the particular sector in which you bought your shares. For instance, if you are expecting a share parice to go up on an agricultural stock you purchased and nearly all of the other stocks in the agricultural sector are also rising, then this is confirmation that you may have made the right decision. But of course the reverse holds true as well. If the agricultural sector is starting to show a decline then it might be a good idea to take your profits and run. By knowing in advance and being aware which sectors are heating up or cooling off stacks the odds in your favour.
HOW STOCKS ARE PRICED
Many people are still confused about the pricing of stocks and the movements of prices when they read through the list of stock prices in the newspapers.
There are a wide variety of stock prices and there are people who keep wondering why some well-known companies are being traded for relatively low prices while some lesser known companies are being traded for excessively high prices.
Stock prices, to a certain extent, are determined by the confidence of an investor that is based on either a real or a perceived performance. The financial status of companies is reported on quarterly basis when their cash flow, sales and earnings are disclosed. The worth of a company is based on its financial status but it can be overrode or undermined by the speculation of the investors.
Rumors spreading in the stock market usually affect the fate of the stocks. For example an ongoing rumor stating that a particular company is planning to make a strategic move will cause investors to come in flocking just to buy stocks from that company.
The principle of supply and demand applies in the stock market. A sudden upsurge in the interest of investors will cause the stock prices to rise while a fear among investors will cause the prices to plummet. The worth and the performance of a company are still considered to be the biggest factors in the determination of stock prices.
Stocks prices can be found in the daily newspapers or your stockbroker.
ADVANTAGES OF INVESTING IN THE NAIROBI SECURITIES EXCHANGE (NSE)
- The NSE is a fair market place.
- Shares bought or sold at the NSE are liquid. This means that it is easy for an investor to quickly convert his investment into cash if need arises
- The prices of the shares are determined by fairly through the forces of demand and supply.
- Easy access and easy exit. There are minimal restrictions if any, to investing at the NSE. You can be a shareholder or a listed company in seconds and exit just as fast.
- There is continuous reporting of their prices so an investor is always up to date with the status of his or her investments.
- There is a variety of companies in which one can invest. This allows the investor to diversify his investments in industries that he is attracted to.
- The shares of most companies at the NSE pay regular dividends. This is way, you make your money work for you.
- Full and accurate information is available on the listed companies that one is interested in investing in. This enables the investor to make informed decisions on where to invest.
- The NSE provides an avenue through which companies can access capital for growth and expansion.
- There are strict regulations for the protection of those who buy and sell shares at the securities exchange.
- A vibrant capital market is integral to the overall economic development of Kenya.
PS: This information is wholly as provided by Kenya Association Of Stockbrokers And Investment Banks 2013