How To Buy Shares in Nigeria

How to Purchase Shares in Nigeria: The Ultimate Guide to Stock Market

Operators in Nigeria stock market include the Nigerian Exchange Limited (NGX). It provides individuals and companies a chance to grow alongside the economy of the nation. Shares in public corporations would constitute a good way of making money and dividends. But the market is complicated. It requires planning, investigation, and a considerable knowledge of workings. This guide will give you a complete idea about the purchase of shares in Nigeria, from its basics to practical steps.

1. Getting Acquainted with the Nigerian Stock Market (NGX):

* Chart of the Organizational and Regulatory Framework:

* The NGX is the principal stock exchange of Nigeria. The Securities and Exchange Commission (SEC) regulates it.

* The SEC is the lead regulator of the Nigerian capital market and undergoes a careful watch over it for the protection of investors and the maintenance of fair play.

* The whole process of purchase and sale is fast and clear by an electronic system (X-GEN) put in place by the NGX.

* The NGX has various segments such as the Main Board, Growth Board, and Alternative Securities Market (ASeM), each segment dedicated to specific companies based on age and activity.

* The Players:

* Stockbrokers: Professionals licensed to transact the buying and sale of stock for investors.

* Issuing Houses: Banks that oversee the issuance of new stocks and bonds.

* Registrars: Firms that maintain the identity of shareholders in respect of various securities.

* Central Securities Clearing System (CSCS): Where trade settlement and securities safekeeping takes place.

* Investors: Individual or institutional parties buying shares.

Indices:

* All-Share Index (ASI) by NGX reflects the overall performance of the entire Nigerian stock market.

* Sectoral indices that report on the performance of various sectors such as banking, consumer goods, oil, and gas, etc.

2. Why You Should Invest in Nigeria’s Stock:

* Opportunity for Gains: Share prices appreciate with time and can be sold at a profit.

* Cash Dividends: Many companies provide a portion of their profits to shareholders.

* Counteracting inflation: Historically, in the long-term, stock markets perform better than inflation.

* Part-ownership of a Company: When you buy shares, you own a piece of that business.

* Risk Diversification: Investing in stocks helps lower the overall risk of an investor.

* Engagement in Economic Development: Stock market investment allows people to engage in Nigeria’s economic development.

3. Basic Steps Before Investing: 

* Financial Planning:

* Define your investment goals, how much risk you can afford to take, and for how long you plan to invest.

* Draft a budget and allocate part of your savings to investment.

* Build an emergency fund before investing in stocks.

* Don’t invest money that you will need in the near future.

* Learning and Research:

* Understand the basic stock investing process: knowing how to analyze companies and market trends.

* Research various businesses and sectors for good investment opportunities.

* Stay updated with the market news and economic happenings.

* Check out review websites like that of NGX, money news websites, and books focusing on investing.

Looking at Risks: 

* Be aware of the dangers associated with stock investment: ebb and flow of the market along with certain company risks, and threats to the economy.

* Consider how much risk you can tolerate, and choose your investments accordingly.

* Diversify your investments to lower your risk.

Selecting a Stockbroker:

* Select a reputed licensed stockbroker who holds a certification from the NGX and SEC.

* Take into consideration their fees, trading tools, research they offer, and the way they treat customers.

* Get advice from those you trust, for example friends, family, or money experts.

* Verify if the broker is a registered agent with the SEC.

* Setting Up a Stockbroking Account:

* Fill in all paper works that are required by stockbroker including KYC forms.

* Offer documentation to prove identity and residency.

* Fund your stock broking account.

* Get your CSCS account number.

4. This is How to Purchase Shares: 

* Inquiry into Stocks:

* Basic Company Check: See how healthy a company’s money is how well it’s run, and how its industry looks.

* Examine moolah reports, what they own and owe, what they earn, and how cash moves.

* Look at those important money ideologues like : stock price versus earnings; how much they owe compared to what they own; how much they earn compared to what they’re worth.

* Consider what the company does differently and how it could potentially expand.

* Chart Study: A study of past prices and how many stocks bought and sold is needed to determine trends.

* Use analytics as well as distinctive analysis tools to determine things like the stock’s strength with respect to its average price over time.

* Determine price levels that equate to ceilings and floors if the price has found buying resistance or selling support.

* Look for some distinct patterns (head and shoulders, double tops).

* News and Opinion makes the market, so keep up with the market in terms of economic prospects and what the investor sentiment is.

* Telling the Broker to Buy:

* You will call your broker and tell him the

* Name of the company or its ticker symbol.

* Number of shares you want to buy.

* The type of order to be executed (market order, limit order, or stop order).

* Market Orders are executed at the prevailing market price; Limit Orders are executed at a predetermined price or better; Stop Orders are put into effect once the price hits a predetermined level.

Execution of Trade:

* The stockbroker executes the order through the NGX trading platform.

* You will receive a trade confirmation from your stockbroker.

Settlement:

* The CSCS, in conjunction with the brokers, settles trade in three working days (T+3).

* The shares are credited to the account of CSCS.

* The Option of Receiving Share Certificate If You So Desire:

* Most shares are presently under existence with the Central Securities Clearing System, but you can opt to request physical shares from the Registrar of that Company.

* This often takes a long time and is now not done so much.

Monitoring Your Investment:

* Look at how your portfolio has been performing.

* Stay updated with company happenings as well as events in the market.

* Readjust your portfolio if the need arises.

5. Order Types:

* Market Order: Order to buy or sell shares at price prevailing at the moment. This order goes through instantaneously but price may vary.

* Limit Order: Is an order to buy or sell shares at a predetermined price or better. Buyers execute buy limit orders at the limit price or below price. Sellers execute sell limit orders at the limit price or above price. This order type allows price control, but the order will not execute if the market price does not reach the limit price.

* A stop order is an order to buy or sell when the market hits a given price. Buyers put buy stop orders above current market price. Sellers put sell stop orders below current market price. This type of order is used to limit the loss or protect profit.

* Stop-Limit Order: A compromise between a stop and limit order, this is the kind of order that, while not being activated itself, sets off a limit order each time the price reaches the stop price. It is therefore a combination by giving better price control and protecting from losses.

6. Investment Strategies:

* Value Investing: A technique of discovering firms currently carrying a lower price than what their fundamentals would show, but which have a strong basic profile.

* Growth Investing: Sharing funds with companies for which one has reason to believe they could grow a lot in the future.

* Dividend Investing: This involves buying shares from companies that have a history of regular dividend payments.

* Index Investing: Investing in either index funds or ETFs that track a specific market index.

* Sector Investing: Specific industries or sectors expected to beat the market.

* Dollar-Cost Averaging: Investing fixed amounts at regular intervals, regardless of market prices.

* Long-Term Investing: Holding investments for extended periods to benefit from compounding growth across many years.

* Short-Term Trading: Trading often, buying and selling stocks to take advantage of little price fluctuations. This requires a lot of observation in the market and possesses larger risks.

* Emotional Investing: If emotions guide all your investment decisions instead of facts, you just will have bad results.

7. Key Considerations and Risks:

* Market Volatility: Stocks prices can be volatile over a very short period.

* Economic Risks: Changes in economic factors such as inflation, interest rates, and GDP growth may lead to movement in the market.

* Company-Specific Risks: Some factors, such as poor management, financial difficulties, and high competition, can harm the performance of a business.

* Liquidity Risk: This is the danger of failing to sell a stock position very quickly when a lump sum of investment is required.

* Information Asymmetry: Some investors have information that others do not, thus creating an unfair advantage.

* Regulatory Risks: New government rules could cause some disruptions in the stock market and among certain industries.

8. Tax Implications:

* Capital Gains Tax: Selling shares and making a profit means that one has to pay taxes on those capital gains.

* Dividend Tax: Companies paid dividends, but from that amount, the government taxes before it lands into your pocket.

* To know how taxes affect you, it’s wise to consult a tax advisor.