rading securities in the Nigerian capital market used to be a nightmare for investors. Millions of investors got frustrated trying to buy shares in Nigeria. It was all because of the long protocols and requirements involved. In this article, you will learn how to trade the Nigerian stock market with ease and from the comfort of your home.
Let’s dive in.
What's in this guide?
What are stocks?
Stocks, often used interchangeably with ‘shares’ or ‘equities’, are units of ownership in a public/quoted company. The owner is called a shareholder, is entitled to receive regular interests on investment, called dividend, and has voting rights.
It is necessary for every potential investor to understand the inner workings of the Nigerian bourse before trying to buy shares in Nigeria. Owning shares with a company means a shareholder has power that is equivalent to the amount of stock he holds in the company. For instance, an investor who buys 100 units of shares has more ownership stake than another investor who holds 20 units. The former would be entitled to higher dividends and more voting power.
The value of a company’s shares depends on its overall market performance. Naturally, a company’s share unit price will rise if the company is doing well, and otherwise when things go south.
Quoted companies are firms whose shares are listed on the stock exchange and therefore, open to being traded by stockbrokers. Such firms can easily raise capital by simply offering more stock for subscription by the investing public. An example is the recent MTN offer for 14% of its entire equity stake to Nigerian investors.
Meanwhile, unquoted companies do not offer their shares openly for trading and are not listed on the stock market.
What is stock trading?
Stock trading is the process of buying and selling stock and other securities in the stock market. To buy shares in Nigeria, all investors must pass through the Nigerian stock exchange.
How the stock market works is that share prices are fixed by the forces of demand and supply, which is fuelled by trading activities of individual stockbrokers. The stock market itself does not determine the price of shares but rather provides a platform for buyers and sellers to influence unit price of stocks as they place their orders.
The Nigerian securities and exchange commission (SEC) regulates the activities of traders and brokers in the capital market.
What is the Nigerian Exchange Group (NGX)?
The Nigerian exchange group is an organized market structure that allows buyers and sellers of equity access to shares, ETFs, bonds, and other securities from quoted companies, government, and international investment opportunities as well.
To buy and sell stock and other securities in the Nigerian stock exchange, an investor would have to go through a licensed stockbroker who will trade on his behalf. Another option is to trade remotely through direct market access.
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How to buy shares in Nigeria in 5 easy steps
Nowadays, the process of buying shares in the Nigerian stock exchange is as simple as making a transaction. However, it is even easier and cheaper to buy stock through an online brokerage firm in lieu of the traditional structure.
1. Find a stockbroker that matches your investment goals
The first step for anyone looking to buy shares in Nigeria is to find a broker you can invest with. Stockbrokers serve as intermediaries between the stock exchange and individual investors.
Therefore, choosing a stockbroker would not be a difficult task so long as an investor knows what their goals for investing are.
It is imperative to ensure that a stockbroker is licensed by the SEC before proceeding to open an account with them. Check their brokerage fees too, if it is affordable for your budget or not.
2. Register and create an account with your preferred brokerage company
The next step after carefully choosing a broker is to open an account with them. This is like opening an account with a commercial bank, only that it allows people to trade the stock account using funds they deposit in the account. Opening an account with a broker takes anything between 3 hours to 2 days depending on the firm and compliance to KYC policy.
Online brokerage accounts take a shorter time to process. The requirements to open a verified brokerage account are:
- Bank verification number (BVN)
- Proof of address (utility bills such as water bills, and electricity bills). Note that, it must be a recent one to prove validity, at least within the last 3 months prior to submission.
- A valid government-approved means of identification (National identity card, driver’s licence, international passport)
- Two coloured passport photographs.
- CAC issued certificate of incorporation (for corporate bodies).
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3. Fund your account
After creating a verified account with a stockbroker, you would need to fund your account. This money would be used for trading. Some brokers allow direct bank transfers from your bank to theirs.
To understand their services and make trading easier, you can download a broker’s app to your phone or PC. For online brokers, the app is their trading platform. Hence, it is necessary to download the version of their app that is compatible with your device. This will help you easily monitor your trade and stock price fluctuations.
4. Start trading
This is a crucial step when buying shares in Nigeria. You should clearly understand the securities you are investing in, beforehand. The reason is, that there are risks attached to each investment. For example, if an investor wishes to buy and hold shares of company ABC, it is advisable to first consult an expert or at least research and study the trading history of that company.
How well has the company performed in the best?
What are the stock price movements over the years, especially prior to making an investment?
Are there any potential risks attached to the company that can affect the price of stock?
What trading patterns can be deduced over the years?
What government regulations surrounding the company will not be in your favour?
Is it a worthy investment over time?
These, and many more are questions every potential investor should ask before putting money to any company’s shares or security on the stock market.
Research the stocks you want to invest in and relate the type and amount of shares to your broker, who will then make the purchase for you.
Once this is done, your broker will send the investment details to you in a contract note. This will contain all the information about the investment including the fees and commission charged.
5. Manage your investment portfolio
This last step begins after successfully buying shares in the Nigerian stock exchange. It involves monitoring your trading account for price fluctuations and making decisions on whether to buy, sell or hold stock.
The reason why everyone trades the stock market is to make profit, whether long-term or short-term. Another reason though, is to hold enough stock and gain more voting rights in a company in the long run. Whatever, your investment goals are, will determine how you manage your investment portfolio.
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Top brokerage apps in Nigeria
Here is a list of top online investment apps from which you can buy shares in Nigeria:
- Bamboo vest
Top 10 brokerage companies in Nigeria
- Cardinalstone securities ltd.
- Meristem securities ltd.
- GTI capital ltd.
- Apt securities and funds
- EFG Hermes Nigeria ltd.
- Cordros securities ltd.
- Stanbic IBTC stockbrokers ltd.
- Chapel hill denham securities ltd.
- CSL stockbrokers ltd.
- Morgan capital securities ltd.
Some stockbrokers like Chaka, trove, and others offer both investments in foreign and domestic securities.