Are you interested in the Nigerian stock market? Then this article is for you! The Nigerian Stock Exchange offers access to the country’s dynamic financial markets, where savvy investors can unlock and tap into many opportunities that abound. However, successfully navigating the market requires more than just enthusiasm or even luck—the venture demands a good understanding of the modus operandi of the market. So, let’s dive deep into investing in stock for beginners.
Understanding Nigerian Stock Exchange
The Nigerian Stock Exchange (NSE) provides all Nigerians and foreigners an equal chance to trade Nigeria stocks. It began as the Lagos Stock Exchange in 1961 but was renamed to the Nigerian Stock Exchange in 1997. Today, the stock exchange is one of the most developed stock exchanges in Africa as there are over 160 companies listed on the Nigerian stock exchange market.
How Stock Trading Works
Stock trading involves the frequent purchasing and selling of stocks to make a profit. If you accumulate the stocks for an extended period is stock investing. A day trader generally buys and sells stocks the same day. Broadly speaking, companies are only allowed to trade publicly on a stock exchange if they are public companies. As such, the general public and outside investors can invest in them.
Companies can use this method to raise capital to expand their business or raise capital for a public offering. In most instances, new companies must first register with an exchange through an Initial Public Offering (IPO)
Notably, the most common ways to earn income as an investor are through dividends from a company or predicting on share value such as day trading or value investing on the stock exchange.
Steps To Invest In The Nigeria Stock Exchange
Step 1: Research And Choose Your Preferred Stockbroker
A stockbroker is an appointed agent who is authorized to execute, buy or sell instructions on an investor’s account. In the Nigerian stock market, a stockbroker is a broker-dealing firm that is a member of the Nigerian Stock Exchange (NSE) and is registered with Nigeria’s Securities and Exchange Commission (SEC).
There are over 100 stockbroking firms in Nigeria. So when choosing a stockbroker, you must consider critical factors such as ease of access, affordability (because some firms place a minimum amount for account opening), integrity/reputation, and status with the NSE/SEC. It is imperative for you to confirm the stockbroker’s status with the NSE and the SEC before opting.
Step 2: Open An Account On The CSCS (Central Security Clearing System)
All investors have to be registered on the CSCS to participate in the NSE. CSCS is an associate company of the NSE. This system is an electronic database that records ownership of Nigerian securities. During registration, the system assigns you an account number that will be attributed to every stock trade you execute.
Your stockbroking firm facilitates the opening of an account on the CSCS. You can do so by registering with a stockbroker, as clients must fill out the registration form issued by the broker (either online or manually) and provide KYC (know your customer) documents. These are means of identification, proof of residential address, passport photograph, and electronic signature (if filling out online).
Step 3: Fund Your Account And Trade
In this step, your stockbroker will provide you with their bank account details, and they will fund your account as soon as the payment you make is confirmed. This enables investors to trade on the floor of the Nigeria Stock Exchange only through stockbrokers.
Moreover, trade instructions can be obtained through traditional order papers (sent by email, fax, or courier) or online trading platforms. It should be noted that online platforms have become mainstream for trading on the NSE.
However, beginner investors must be cautious when using these platforms to avoid uniform or impulsive trading that could result in avoidable losses. Therefore, you must seek advice from your stockbroker before trading.
Step 4: Collect Benefits On Your Investment
Investors make money through three (3) ways: dividends, capital appreciation, and bonus shares. While some stocks pay final dividends at the end of the financial year, others pay an interim dividend around the middle of the financial year. Nevertheless, paying dividends to shareholders is not compulsory.
When there is a large profit margin, a company may decide to reinvest part of the profit to create new shares and then reward shareholders with these extra shares through a bonus or scrip issue. As a shareholder, you can choose to retain your bonus shares or sell them, exchanging them for cash.
Step 5: Recreate / Reinvest Your Choice
This is the step where you choose to do something interesting with your earnings, such as going on vacation, buying a new property, or, better yet, reinvesting. Take your time to make a better choice for yourself.
Frequently Asked Questions (FAQs) About Investing In The Nigeria Stock Exchange
What Are The Benefits Of Investing In The Nigerian Stock Exchange?
Investing in the Nigerian Stock Exchange offers many benefits, including the potential for high returns, diversification, liquidity, and regulatory oversight.
What Types Of Investments Can I Make In The Nigerian Stock Exchange?
The Nigerian Stock Exchange Offers a wide range of investment opportunities, including stocks, bonds, and exchange-traded funds (ETFs).
Can I Invest In The Nigerian Stock Exchange As A Foreigner?
Foreigners can invest in the Nigerian Stock Exchange, but they may need to comply with additional regulatory requirements.
How Do I Place An Order On The Nigerian Stock Exchange?
You can place an order through your stockbroker’s online platform or mobile app or by contacting your stockbroker directly.
What Is The Minimum Amount Required To Invest In Nigerian Stock Market?
The minimum amount required to invest in the Nigerian stock market varies with the stockbroker and the type of investment.
Conclusion
Investing in the Nigerian Stock Exchange can be a lucrative venture, providing opportunities for wealth creation and diversification of income streams. But it requires careful planning, research, and a thorough understanding of the risks and challenges involved. You can start investing in the Nigerian stock market and achieve your financial goals through the steps highlighted in this article.
