If you’re looking to invest in Nigerian stock market? This complete guide on how to invest in Nigerian Stock Market is what you just need.
Investing in the stock market in Nigeria is a powerful and efficient way to grow wealth. Nigeria has a vibrant economy and a dynamic stock market which offers ample opportunities for individuals to achieve their financial goals. However, investing in stocks is not something you walk into blindly. Without adequate knowledge of the world of stocks, it’s easy to get whooped into loses. You must familiarize yourself with the basics and key concepts to build a strong foundation for making informed decisions and managing your investment portfolio effectively.
In other to help you succeed in your stock market investment goal, we have put together in the past some helpful tips in stock market investment. And today, I guide on how to invest in Nigerian stock market.
What’s stock market & How does it work?
Stock market refers to an exchange where stockbrokers and traders participate in the buying and selling of securities such as stocks, bonds and other financial instruments of publicly held companies. In other word, it is where buyers and sellers of securities meet, interact, and trade in an open market, where they are assured of a fair price, high degree of liquidity and transparency.
The stock market provides a transparent and safe environment where participants can transact in share and other financial instruments with low risk of loss.
The stock market is divided into the primary and secondary market. In the primary market, companies sells their shares to the public for the first time through the process of an initial public offering (IPO). The company uses this process of dividing itself into several shares and selling to the public at a price per share to acquire investors and raise capital for its operations. Share owners in a company will expect the prices of their shares to rise as the company grows, or receive dividends or both. In the secondary market, investors buy and sell securities that they already own.
Key Stock Market terminologies and Concepts
Understanding the Nigerian stock market is crucial to investors, as it ensures that they are able to make better decisions. Below are some key stock market terminologies to understand while navigating the Nigerian stock market
Key Stock Market terminologies
Nigeria stock exchange (NSE) – The NSE is the largest stock exchange in the whole of Africa. It serves as the primary platform for buying and selling stocks in Nigeria.
Securities and Exchange Commission (SEC) – The SEC oversees the NSE to ensure its compliance with with rules and regulations, ensurefair practices and protects the interests of the investors.
Market indices – There are some indices in the Nigerian stock market that serves as a tool to provide insights into industry performance. There are also indices that helps track the performance of of specific groups of stocks, most notable of which is the All-Share Index (ASI), which measures the overall performance of the market by tracking the price movements of all listed stocks.
Trading sessions – The Nigerian stock market operates primarily through designated training sessions. The pre-open session allows participants to order for stock before the market officially opens. The Opening Auction determines the opening price of the stock. The Continuous Trading session is the extended trading period where buyers and sellers interact. Lastly, the Closing Auctions determines the closing price of stocks.
Key Stock Market Concepts
Shares – Shares is a portion of a company that can be owned by a shareholder. A company typically divides itself into several shares with a fixed price on each share. When you purchase shares to a company, you become a shareholder and have a claim on the company’s assets and earnings.
Dividends – Sometimes, shareholders may receive returns on their investments in the form of dividends. Dividends are a portion of a company’s profits distributed to shareholders as a return on their investment.
Risk and return – There are risks involved in stock exchange, and losing money is one of them. You should make sure to assess your risk tolerance and potential returns before and create a foolproof strategy before investing in stocks.
Investment strategies – There are certain approaches and investment strategies that are essential to learn before investing in the Nigerian stock market. They include:
- Fundamental analysis – This investment strategy focuses on company-specific factors like financial health, management quality, competitive positioning to determine the profitability of investing.
- Technical analysis – This investment strategy focuses more on market trends and using market indicators to predict future price movements.
Secret to success of an stock investment lies in your ability of choosing and implementing the right investment strategies – Emma Onwuka
Diversification – The truth is, not every investment is bound to yield good results, you will end up losing in some. You can diversify and spread your investments across different asset classes to mitigate the impact of any single investment’s poor performance.
How to invest in Nigerian Stock Market
Enter the stock market
Here you choose stockbroker, Open an account and Maintain your account
Choosing a stockbroker
Choosing a good stockbroker is the first step in investing in Nigerian stock market. For a seamless participation in the Nigerian stock market, choosing a reliable and reputable stock broker is paramount. Stockbrokers serve as intermediaries in the stock market by executing buying and selling orders on behalf of investors.
Here are 5 things to consider when choosing a stockbroker:
- Ensure that the stockbroker is registered and licensed by the SEC.
- Evaluate the reputation of the stock broker by checking their reviews, feedback, and testimonials.
- Gauge their reliability, efficiency and customer service.
- Ensure that they are able to provide you with quality research that can assist you in making informed decisions.
- Compare the commission fees charged by your stockbroker and the services they offer to ensure that you are getting the best value for your money.
Open a trading account
Once you have chosen a stock broker, the next step will be to open a trading account. To successfully open a trading account, follow the steps below:
- Contact your stockbroker and inform them of your interest in opening a trading account. They will guide on how to go about it.
- Prepare the required documentation with information that is recent and accurate. They may include identification documents (like international passport or national ID card), proof of address, and completed application forms.
- Submit the required documents to your stockbroker so they can review and process your account opening request.
Account maintenance and support
Talk to your stockbroker to fully understand the requires your account maintenance. There maybe frequent changes so you need to stay updated and current. If you have a good stockbroker, reliable information and responsive assistance will be accessible to you.
Fund your account
Before you can invest in the Nigerian stock market, you will have to first fund your account to have available capital. Again, if you have a good stockbroker, they will assist you through this process.
The ways you could fund your trading account in Nigeria are very limited. They include:
- Bank transfers
- Online payment platforms like debit card payments, mobile money transfers, or other online payment services.
After funding your account, it is important to check that the funds are correctly reflected in your trading account. Regularly check your balance and account history and report any discrepancies you find to your stockbroker.
Always make sure there are security measures you put in place to protect your account. There are fraudsters roaming the internet looking for a way to scam people of their money. Prioritize and invest insecurity measures to protect your funds. Ensure that you always use a secure internet connection to access your account and avoid sharing sensitive information.
Place order and manage investments
It is important to understand the different types of orders you can place in the Nigerian stock market, as each type of order has specific instructions for executing trades. The common order types include:
- Market order
A market order is an instruction to buy or sell a stock at the current market price. With this type of order, the execution of the trade is guaranteed, however, the exact price at which the order is filled may vary.
- Limit order
A limit order is an order to buy or sell stock at a specific price. When you place a limit order to buy, it means it is the maximum price you are willing to pay. When you place a limit order to sell, it means it is the minimum price you are willing to sell. Your trade will not be executed immediately; it will only be executed when the stock reaches or surpasses your specified price.
- Stop order
A stop order is used to limit losses. It is an order to sell stock when its price falls to a specified level known as the stop price.
- Stop-limit order
A stop-limit order combines the features of a stop order and a limit order, in that it includes a stop price and a limit price.
How to place orders
Below are the general steps to take when placing orders in the Nigerian stock market:
- Log into your trading account.
- Identify the stock you want to trade.
- Choose an order type.
- Indicate the amount of stock you want to buy or sell.
- Set price parameters if you are trading in limit orders, stop orders or stop-limit orders.
- Double-check the details of your order, including the stock symbol, order type, quantity and parameters.
- Ensure that everything is accurate then submit the order.
Order execution and confirmation
After your order has been placed, it will go through a process of execution. This process may take a while, and the time it takes depends on several factors including market liquidity and order type.
It is extremely crucial to your success in the Nigerian stock market to actively monitor your open orders. This is key to maximizing returns and minimizing risks. To manage your investments effectively, you must regularly review your investment portfolio, stay informed about market trends and make adjustments when necessary.
Withdraw your investment profit
You can withdraw your investment profit into your mobile wallet or withdraw to linked bank account anytime. Once, your investment accrue some gains, it is important you withdraw it. This will help you to track the progress of your investment unless you are compounding your interest.
NB: You can now invest and trade both Nigerian and US stocks in Nigeria. Some of best trading app in Nigeria include:
- Bamboo – I use Bamboo to invest in the Nigerian and US stock markets and can now buy stocks right from my phone! If you’re interested, you can sign up now in less than 5 minutes => Signup here.
- Rise and so on.
Investing in the Nigerian stock market is an extremely rewarding venture when done right. To ensure that you do well in the Nigerian stock market, you must understand the Nigerian stock market, educate yourself on trading, choose a good stockbroker to assist you in opening and finding your trading account, place orders, and manage your investments properly.