The Nigerian stock exchange market was initially designed to make trading in government bonds and other fixed-income instruments easier. But it quickly expanded to include trading in equities, making it more complex than it was at that point.
But as a beginner seeking to understand how the stock market works in Nigeria and how to invest in stock, it is important to first seek the knowledge from historical facts and relate them to contemporary happenings. This way it would be easier to accumulate knowledge of the stock market and how it works in its entirety.
In the early years of its existence, the Nigerian Stock Market was a relatively small market, with only a few listed companies and limited trading activity. However, in the 1980s and 1990s, the exchange underwent a period of rapid growth and expansion.
The article will cover:
Understanding Nigerian Stock Market
For a better understanding Nigerian stock market, we’ll briefly go through the history of the Nigerian stock market. In the early years of its existence, the Nigerian Stock Market was a relatively small and solid market, with only a few listed companies and limited trading activity. However, in the 1980s and 1990s, the exchange underwent a period of rapid growth and expansion.
But in recent years, the Nigerian Stock Market has shown signs of renewed growth and stability. In 2013, the exchange introduced a new market structure, which divided the market into three segments: the main board, the alternative securities market, and the premium board. This new structure was designed to provide investors with more options and to encourage companies to list on the exchange.
Today, the Nigerian Stock Market is home to over 170 listed companies and has a total market capitalization of over $50 billion. While the exchange still faces several challenges, such as limited liquidity and a lack of investor education, it remains an important source of financing for Nigerian companies and a key driver of economic growth in the country.
How Nigerian Stock Market Works
The Nigerian stock market is known to offer trading and listing services that allow interested investors to make a profit through the automation of several securities which are:
Companies Offer Shares – Businesses that seek to raise money may offer shares of ownership to the general public. Investors can purchase these shares through an initial public offering (IPO). Afterward, the full functionality can then begin to come into play.
Read: How to Buy Shares in Nigeria (Complete Guide)
Trading – Another technical way the Nigerian stock market works is through trading. Investors may buy and sell shares after they are listed on the NSE. Using a stockbroker, investors can purchase shares, and the stockbroker will put the transaction on the NSE trading platform.
Stock prices – Supply and demand decide how much stocks cost on the NSE. The stock price increases when there are more buyers than sellers, and decreases when there are more sellers than buyers.
Indices – The NSE maintains several indexes that monitor the stock market’s activity. The NSE All-Share Index, which monitors the performance of all businesses listed on the exchange, is the most well-known index.
The Securities and Exchange – The Commission (SEC) and the Central Bank of Nigeria (CBN) both control the NSE market . These regulatory authorities make certain that the market is open and fair, and they also enforce laws and rules to safeguard investors.
Dividends – Dividends may be paid to shareholders by companies that list their shares on the NSE. A percentage of the company’s profits are given as dividends to shareholders.
Risk – Investing in the stock market has some level of risk, just like with any other type of investment. Share values can fluctuate, and if the market declines, investors could lose money. Before investing in the stock market, investors should conduct due diligence and consult experts.
In general, the Nigerian stock market gives investors the chance to purchase and sell shares of ownership in publicly traded companies, with the possibility of receiving a return on their investment in the form of dividends or capital gains.
Securities Traded in Nigerian Stock Market
The Nigerian Stock Market is regulated by the Securities and Exchange Commission (SEC) and is composed of two main exchanges: the Nigerian Stock Exchange (NSE) and the NASD OTC Securities Exchange. However, below are the types of stocks you can find in the Nigerian stock market.
Stocks – Stocks usually referred to as shares or equities, signify ownership in a corporation that is publicly traded. In essence, you are purchasing a little stake in a firm when you purchase a share of its stock. Stock as an instrument indicates ownership in a corporation. You become a corporation shareholder when you purchase stock.
Examples of Stocks in Nigeria:
- UAC of Nigeria
- Guaranty Trust Holding
- MTN Nigeria Communications Plc
- Dangote Sugar Refinery
- FBN Holdings
- Flour Mills of Nigeria
Bonds – Bonds are fixed-income instruments that act as collateral for loans made by investors to borrowers. For corporate bonds, the borrower is a business. Bondholders get regular interest payments and their initial investment back when the bond matures.
Examples of Bonds in Nigeria:
- Agency Bonds
- Corporate Bonds
- Supranational Bonds
- Sub-national Bonds
- Short-Term Bonds
Exchange Traded Funds (ETFs) – Similar to stocks, these investment funds are traded on an exchange. Investors have access to a diverse portfolio of assets through ETFs, which hold a basket of assets including stocks, bonds, or commodities.
Mutual Funds – These are expertly managed investment vehicles that pool capital from several participants to buy a portfolio of stocks, bonds, or other securities.
Financial instruments known as derivatives: They are derived from an underlying asset, such as a stock or commodity, and draw their value from that asset. Futures and options contracts are two examples of derivatives.
Examples of Mutual Funds in Nigeria:
- Lotus Halal Fixed Income Fund. (YTD Returns)
- Nigeria International Debt Fund. (YTD Returns)
- United Capital Wealth For Women Fund. (YTD Returns)
- FSDH Dollar Fund. (YTD Returns)
- Stanbic IBTC Shari’ah Fixed Income Fund
- ARM Eurobond Fund
- ARM Fixed Income Fund
- Coral Income Fund
REITS – Real estate investment trusts (REITs) are businesses that hold and manage properties with income potential. A significant amount of REITs’ profits must be given back to shareholders in the form of dividends.
Tips for Beginner Stock Exchange Investors
There are many ways to educate you about the stock market. These tips will not only educate you but prepare and equip you with the necessary intellectual properties needed to succeed in the field. Here are some steps you can take to get started:
There are many books available on the subject of investing in the stock market. Some of the classic books are “The Intelligent Investor” by Benjamin Graham, “One Up on Wall Street” by Peter Lynch, “The Little Book of Common Sense Investing” by John Bogle, and “The Warren Buffett Way” by Robert Hagstrom.
Secondly, there are many online courses available that can teach you about investing in the stock market. Some popular platforms for online courses include Udemy, Coursera, and edX.
It’s a good idea to start small and invest in a few companies that you understand and have researched. This will help you learn and gain experience without risking too much. Losing all your investments largely immediately as an amateur can jeopardize your momentum to learn and invest into the stock market, so therefore start small.
Follow Financial News
Keep up to date with the latest financial news by reading newspapers, watching financial news channels, and following financial blogs. This will help you understand the factors that can influence stock prices.
Practice with Virtual Trading
Many online platforms offer virtual trading where you can practice investing in the stock market without risking any real money. This can be a great way to learn about investing and test out different investment strategies.
Join an stock Investment Club
Joining an investment club can provide a supportive environment to learn about the stock market with others. This can also help you learn about different investment strategies and techniques. There are so many stock investment club you can join out there.
Read: Top 10 Investment Companies in Nigeria
Consult a financial advisor
If you are new to investing or unsure about your investment decisions, consulting a financial advisor can provide valuable guidance. A financial advisor can help you develop a personalized investment plan based on your goals and risk tolerance. This is one of the best way to take calculated risk in stock market investment
Set Realistic Expectations
The stock market can be volatile. And there can be ups and downs. Set realistic expectations and don’t expect to get rich overnight. This is one of the best ways to be real to yourself for a long-term achievement.
Keep a long-term perspective
The stock market can be unpredictable in the short-term, but historically, it has provided positive returns in the long-term. Don’t panic and sell your investments when the market dips. Instead, keep it long-term.
In conclusion, as beginner stock investors you can gain knowledge of the stock market through research, following financial updates, and attending virtual training. Once done diligently, you’re sure of gaining much knowledge of the Nigerian stock market.