How To Invest in the Nairobi Securities Exchange in 6 Steps
1. Pick a Broker
Brokers are authorised intermediaries to trade financial assets on the Nairobi Securities Exchange.
2. Open a Trading Account with the Broker
The only requirement is to be of legal age and reside in Kenya. The Broker will provide access to their investment platforms, allowing you to send purchase and sale orders to the Nairobi Securities Exchange's central system.
3. Choose the Asset in which to invest
The investor has to decide whether to invest in shares, sovereign bonds or corporate bonds.
4. After making a decision, send a Buy order via the Broker
Submitting a purchase order for a financial asset. Setting a limit or market price for the selected asset is possible.
5. The transaction is completed if the buy and sell prices match
When the bidding price of an asset coincides with the asking price, the trade is executed. The Brokers make the transaction payment at the Stock Exchange in your name and deliver the transaction amount to the buyer/seller broker. You become the legal owner of the asset.
6. The Broker issues the transaction notification and charges their fees
There is no fixed fee, which means that when choosing a broker to invest in the Nairobi Securities Exchange, selecting the one that better adapts to the investor's needs is crucial.
How does the Nairobi Securities Exchange work?
What is the Stock Exchange
Based in Nairobi, the Nairobi Securities Exchange was founded in 1954 and is the country's leading Stock Exchange.
In short, the stock exchange is the institution that facilitates the negotiation of financial instruments in Kenya. Supply of financial instruments such as stocks, bonds, currencies, and the demand for these instruments (i.e. investors) interact here.
The Stock Exchange holds daily "Trading Sessions", providing the physical, technological, human and operational means that allow efficient communication between Brokers, Issuers and Investors.
What is a Securities Issuer?
Issuers of securities are companies that seek to grow through raising capital at the Nairobi Securities Exchange. These companies raise capital by issuing debt (bonds) or capital (shares). Issuers of securities may be government-controlled entities or private companies, but no matter who owns the company, the issuer backs the investment.
For example, if you invested in bonds from a private company, the company will be required to pay the principal and interest to the bond investors.
How is a Trade completed in the Stock Exchange?
A trade, or, in other words, the investment flow of any financial instrument, could be summarised as follows:
1. Sellers (supply) offer to sell a financial instrument at a price, for example, a bond issued by a company. Sellers aim to make this price as high as possible (Price 1).
2. Investors (demand) who wish to buy the bond make an offer for a price. They want this price to be as low as possible (Price 2). Then, Price 1 is higher than Price 2.
3. Buyers interact with sellers until they are at the point where Price 1 equals Price 2. When this occurs, the financial transaction is completed, and the bond is exchanged between the seller and the buyer. For this interaction to occur, a Broker is needed: A company that mediates sellers and buyers, ordering prices and quantities of financial instruments. Below we explain the services that these companies provide.
What is a Stock Exchange Broker?
Transactions of financial assets can only be completed through a company that works as an intermediary between investors and sellers. These intermediaries are known as Brokers.
Through complex technological tools, brokers manage transactions between investors, ordering the purchase and sale orders of financial assets by price and by order of arrival. By performing this service, they obtain a commission when, for example, executing buying a share.
Brokers are market intermediaries, companies in which buyers and sellers interact and come together to buy stocks or bonds at the negotiated price.
To invest in the Nairobi Securities Exchange, an investor must open an account with a local Broker.
International Brokers operate easy-to-use apps that allow you to buy and trade financial assets (like US Stocks, Commodities, Indices) on any device.
Investing in International Financial Assets [From Kenya]
As we have mentioned many times in this guide, trading of financial assets must be done through a Broker. If you open an account with a broker who trades in the Nairobi Securities Exchange, you can only trade locally listed assets.
If you, in turn, decide to open an account with an international Broker, you may invest in countless global assets. In other words, you can invest in international financial assets, such as stocks listed on the New York Stock Exchange from Kenya, through an international Broker.
The job of an international Broker is to connect their clients with international Stock Exchanges. In other words, if a client intends to buy Apple shares (listed in New York), the broker buys it for the client and deposits it in the client's trading account. Almost all significant Brokers generally provide access to Exchanges from the United States, Canada, the UK, Japan, Switzerland and Europe.
Opening an account with an international broker is usually an online process, and you can operate in the global financial market from your phone in just a few days. Pepperstone, for example, has a local presence and is regulated in Kenya.
Best Brokers to Buy International Stocks available in Kenya
The African continent is currently the fastest-growing region in terms of new investors added to the market. Find out how to invest in the Nairobi Securities Exchange. We also briefly describe how to invest in International Stock Exchanges from Kenya.
This article will help you start investing, from the minimum amount required to open an account to some ideas to consider in your portfolio.
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