1, Underwriting

  • This is the assumption of risk relating unsubscribed shares

  • When new shares are issued, they may be underwritten/unsubscribed. A merchant banker agrees, under a commission to take up any shares not bought by the public.

  • They therefore ensure that all new issues are successful

  • Underwriters are very important in pry markets and play the following roles:

  • Advice firms on most suitable issue price

  • Ensure shares are fully subscribed by taking up all unsubscribed shares

  • Advice the firms on where to source funds to finance floatation costs.

 2. Blue Chips

  • Are first class securities of firms which have sound share capital and are internationally reputable.

  • They have very good dividend record and are highly demanded in the markets. Individuals holding such securities are reluctant to sell them because of their high value.

3. Going short or long on a share

  • This is the process of selling (going short) or buying (going long) on a share that one does not have/own

  • The aim is to make gain from assumed change in the market value of shares

  • This practice is not allowed in Kenya

  • It is aided by brokers in countries where it is practiced

  • Investors going short or long are required to pay a premium called margin on the transaction.