Friday, 10 March 2017

Understanding the Nairobi securities exchange



The Nairobi securities exchange (The NSE), is the Kenya’s market place for shares, bonds, unit trusts and other financial instruments. At the NSE people buy and sell shares, bonds and other securities.
Trading at NSE is a viable venture; one can make big money in a relatively short time, but again it is possible to loose huge sums in an instant. To successfully trade on the NSE, you must understand how it works. 

In this article, I explain how the NSE works, the terms used and how successful investors make the buy or sell decisions. 

The basic stock trading terms

Shares / Equity/ stocks
All this mean the same thing. A stock, a share or an equity is a stake in a company. It is a unit of an investment in a company.
For example the standard chartered bank of Kenya was worth about 41 billion Kenya shillings in the year 2015(Net assets). This value could be divided into units of ownership, and one unit would be referred to as a share. There are about 30 000 persons that have shares (Units of ownership) of the standard chartered bank of Kenya.
Outstanding shares
This are all the shares of a company. In basic terms, this are all the units of ownership of a company. If we may use the standard chartered bank of Kenya example again, this firm had 300 million outstanding shares in the year 2015.

Market Capitalization
This is the value of all the outstanding shares.  Market capitalization is calculated by multiplying the current market price of a share by the total number of outstanding shares. In 2015, Standard charted bank of Kenya had a market capitalization of 60 billion Kenya shillings. 

NSE all share index
The Nairobi securities exchange all share index also abbreviated as NASI is a measure of the overall NSE market capitalization.
It is calculated by dividing the sum of the market capitalization of all listed companies by a divisor/base value. The base was initially set at 100, but it is currently generated by the NSE automated trading system.
A growing NASI (NSE all share index) is a good sign.  Sometimes the NASI is calculated based on the 25 largest firms on the NSE.
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