Home Investment How To Invest in the Nigerian Stock Market

How To Invest in the Nigerian Stock Market [Beginner Friendly]

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Oluwaseun Sanni
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The stock exchange serves primarily as a market for raising capital by channelling the savings of investors into productive ventures, as well as a market for selling securities to other investors who will buy them for cash, which reduces risk and maintains liquidity.

All listed and trading parties are required to comply with the strict rules, listing requirements, and statutory requirements imposed by stock exchanges.

NSE (Nigerian Stock Exchange) provides all citizens of Nigeria and foreigners an equal chance to trade Nigeria stocks. If you have been hearing a lot about investing in Nigeria stocks but not sure how to go about it, this article is for you. By the way, the Nigerian stock exchange market is one of the most developed stock exchanges in Africa.

Nigerian Stock Exchange (NSE) began as the Lagos Stock Exchange in 1961. In 1997, it was renamed to Nigerian Stock Exchange. As of today, over 169 companies are listed on the Nigerian stock exchange market.

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What are stocks or shares?

Stocks or shares represent ownership in a corporation or company. When you own shares of a company, you own a part of its asset and earnings.

All shares held outside of a company by external investors are defined as outstanding shares. For instance, if a company has 500,000 shares, holding 50,000 shares would mean owning 10% of the company.

Companies or corporations can be either public or private. Private companies are generally owned by a few people, including founders, investors, or management. As a public company, regular people can participate in the business by purchasing shares as part of an initial public offering or by directly buying stock from the company’s promoters or founders.

Meaning of stock trading

Elon Musk and Aliko Dangote, for example, are shareholders in Tesla and Dangote Group, respectively. The easiest way to own a portion of a company is to buy its shares.

The value of these shares keeps fluctuating depending on several factors, including the performance of the company. An act of frequently purchasing and selling stocks to make a profit is called stock trading.

Read Also: Forex Trading for Beginners [A Detailed Guide]

How does stock trading work?

While the act of frequently purchasing and selling stocks to make a profit is called stock trading, if you accumulate the stocks for an extended period, then that is stock investing. A day trader generally buys and sells stocks the same day.

Companies are only allowed to trade publicly on a stock exchange if they are public companies. As a result, the general public and outside investors are allowed to invest in them. Companies can use this method to raise capital to expand their business or to raise money for a public offering. New companies must first register themselves with an exchange through an Initial Public Offering (IPO).

The most common ways to earn income as an investor are through dividends from a company or speculating on share value such as day trading or value investing on the stock exchange.

Shares of any listed company can be purchased and sold via the stock market for varying prices.

A company may not participate in stock trading but can buy back its own shares or issue new shares.

Globally, there are several stock exchanges. In some countries, there are multiple exchanges, such as the US, which has Nasdaq and Dow Jones. However, there is only one stock exchange in Nigeria, the NSE (Nigerian Stock Exchange). The 169 companies listed on the Nigerian Stock Exchange have a market capitalisation of ₦29.5 trillion as of 8th September 2020.

How to start trading stocks in Nigeria

Follow these simple steps to start trading on the NSE.

1. Research Your Preferred Stock Broker Thoroughly

In the financial world, a stockbroker is able to buy and sell securities on behalf of investors. This person acts as the investor’s agent. Stockbrokers will work with firms that are members of the NSE and registered with the Securities and Exchange Commission (SEC). Consider the following when choosing a broker or dealer:

  • Accessibility.
  • The cost of their services.
  • The company’s NSE/SEC status, whether it is active or inactive.
  • The integrity and reputation of their company.

2. Open an account with your preferred stockbroker

The Nigerian stockbrokers use a registration form that clients fill out online or manually. Additionally, you must provide Know-Your-Customer (KYC) documents. The following KYC documents are required:

  • National ID or passport
  • An electronic signature and a passport size photograph
  • Proof of residential address through your utility bill receipt
  • Non-Nigerian residents will be required to provide proof of their residential address and passport.

After registering with a stockbroker, you will receive an account number through which you can easily see all your transactions.

Read Also: CBN says businesses in Nigeria must accept eNaira

3. Deposit Funds to Your Account

You should receive bank details from your broker as soon as the account has been opened so that you can deposit funds. Your local bank can walk you through the process of sending money to your broker.

4. Send your first trade order

Once you’ve researched and found a Nigerian stock that you would like to purchase, contact your broker with your instructions. Be sure to specify the limit price for every order you place. This will prevent you from exceeding your budget. After the trade is carried out, your broker will send you a contract with buy and sell prices. 

Settlement of trades or shares takes four days. As a result, if you have sold some shares, you shouldn’t expect payment immediately.

How to invest in the shares of a company

By serving as a marketplace for buyers and sellers, the stock exchange brings buyers and sellers together. Meanwhile, Brokers act as middlemen between stock exchanges and buyers and sellers and charge a commission for executing trades. When an individual owns stocks of a company listed on the stock exchange, they have stakes in that company.

People in Nigeria can invest in any Nigerian public sector company and can also invest in stocks of foreign companies. See how you can go about each:

1. Buying Shares of Nigerian Companies on Nigerian Stock Exchange 

To purchase and sell shares of a public company listed on NSE, you must open an account with a dealing broker registered with NSE. The process is easy and can be completed within 48 hours if the essential details and required documents are provided.

In addition to the brokerage account or stock trading account, you must also have a Central Securities Clearing System (CSCS) account. This system records every security’s ownership in Nigeria. The broker provides CSCS account opening form, which needs to be filled and submitted along with the supporting identity proof documents.

The Clearing House Number (CHN) associated with an CSCS account, which is unique to each registered portfolio, is provided when the account is opened. Once both accounts are opened and the appropriate documents have been submitted, you can start placing orders through your broker to buy and sell stocks.

Read Also: CBN says access to finance remains one of the biggest threats to MSMEs

2. Buying shares/stocks of foreign companies

NSE does not list shares of foreign companies such as Apple, Tesla, Microsoft, and Google. Thus, opening an account with a foreign broker like Robinhood or E-Trade would be required to purchase their shares. Sadly, due to the fact that most of such brokers don’t accept foreign clients, that is also not possible.

The market for foreign stocks in Nigeria has, however, advanced in recent years as several applications have been developed that enable Nigerian traders to buy and sell stocks foriegn stocks. Chaka, Trove, Wealth.ng and Bamboo are examples of some of these apps.

Simply download the app from your app store, set up your account and start trading.

Other FAQS on Nigeria Stocks

Are there transaction fees?

Any time your bid or offer is accepted, you are charged a transaction fee. Regulators charge statutory fees, as do brokers. Brokerage fees vary between 1.5% and 1.8% per transaction while statutory fees are fixed.

Taxes?

Nigeria does not impose a capital gains tax on buying and selling stocks.

How do I clear funds?

The entire process of buying or selling stocks usually takes about four days. NSE clearing and settlement take place in T+3 (trade date plus three days).

How is withdrawal done?

Upon selling equities, your cash remains in the broker’s account until you request a withdrawal, which takes approximately 24 hours to process. If you have an online brokerage account, you can withdraw by visiting the portal and clicking withdrawal. With some brokers, withdrawals must also be confirmed by email before funds are received in your account. The account that will receive your cash is the one you provided when you registered.

Data and information

Having data will help you build a robust stock. Though the Nigerian Stock Exchange doesn’t provide much data, you can start by getting some from other sources. 

Companies provide their results and other corporate information on the NSE’s website. Those companies that fail to comply are fined accordingly. Additionally, you can check the investor relations section of each company’s website.

In conclusion

In addition to capital gains, investing in companies listed on the Nigerian Stock Exchange also allows you to earn dividends. There are three ways for dividends to be paid: cash, stocks (script dividends), or a hybrid of cash and stocks.  Hence, investing in the Nigeria stock exchange is surely a smart move.

Before buying the shares of any company, make sure you do a thorough research on their track record and performance overtime. Do not invest based on sentiments e.g “I know someone in this company so I will buy their shares”. It may end in tears.

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Quick Summary

Prefer the short version? Here is a concise recap of the key ideas in this article.

As a public company, regular people can participate in the business by purchasing shares as part of an initial public offering or by directly buying stock from the company's promoters or founders. While the act of frequently purchasing and selling stocks to make a profit is called stock trading, if you accumulate the stocks for an extended period, then that is stock investing. However, there is only one stock exchange in Nigeria, the NSE (Nigerian Stock Exchange). People in Nigeria can invest in any Nigerian public sector company and can also invest in stocks of foreign companies. Buying Shares of.

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