Nairobi Securities Exchange trading floor. FILE PHOTO | NMG It is the dream of retail investors to invest in companies that give them the opportunity to diversify their portfolios, including foreign stocks, to mitigate the risk due to price volatility.
This is especially true at the moment due to the negative impact of the Covid-19 pandemic being felt in all sectors and economies globally.
However, most retail investors who may have an opportunity to invest in international stocks may find it expensive to buy individual shares of companies quoted on global stock markets like Tesla, Apple, Amazon, Toyota, Honda and Alibaba. At the time of writing this article, Amazon was trading at more than Sh360,800 ($3,319), whereas Tesla was trading at Sh48,270 ($444).
But all is not lost. Retail investors have an opportunity to invest in these global brands through Contract for Difference (CFD) fractional shares, which allow an investor to purchase a small fraction of these shares.This essentially means that an investor does not need a huge investment to add the top global companies to his or her investment portfolio.
Fractional shares are smaller portions of a share, which enables new investors to own a small portion of a share. For instance, instead of purchasing one full share of Apple, you can buy 0.1 or 1/10th part of the share, offering the flexibility to invest as much as you want in a company instead of purchasing a full share.
Investing through CFD fractional shares has the potential to democratise stock markets by facilitating access to stock markets for retail investors. People who never had access to highly priced shares can start investing in top global companies.
The first step is to choose a brokerage firm that offers CFD fractional shares to their existing retail customers. It is also advisable to choose a brokerage firm that charges nominal transaction fees and lower commissions, along with timely settlements. After that, the next step is to develop a stock watchlist with shares of companies that investors are interested in. Investors are also advised to diversify stocks across industries, sectors and locations to mitigate risks.
Ideally, investors are able to input the amount they wish to invest in a particular share, which allows the broker to calculate the equivalent CFD fractional share and process the trade. When the market meets the objectives of the investment strategy, the risk is calculated and trades are executed.
Investing through CFD fractional shares has […]
