How To Buy Shares in Nigeria
Buying Shares in Nigeria: A Complete Guide to the Stock Market
The Nigerian Exchange Limited (NGX) runs Nigeria’s stock market. It gives people and companies a chance to grow with the country’s economy. Buying shares in public companies can lead to more money and dividends. But the market is tricky. You need to plan, check things out, and know how it all works. This guide will show you everything about buying shares in Nigeria, from the basics to the actual steps.
1. Getting to Know the Nigerian Stock Market (NGX):
* How It’s Set Up and Controlled:
* The NGX is Nigeria’s main stock exchange. The Securities and Exchange Commission (SEC) watches over it.
* The SEC is the top dog. It keeps an eye on the Nigerian money market to protect investors and keep things fair.
* The NGX uses a computer system (X-GEN) to make buying and selling quick and clear.
* The NGX has different parts: the Main Board, Growth Board, and Alternative Securities Market (ASeM). These are for different types of companies big and small, new and old.
* Who’s Who in the Market:
* Stockbrokers: Licensed middlemen who buy and sell stocks for investors.
* Issuing Houses: Banks that oversee the release of new stocks and bonds.
* Registrars: Firms that keep track of who owns which shares.
* Central Securities Clearing System (CSCS): The place that settles trades and stores securities.
* Investors: People and groups who buy shares.
* Indices:
* The NGX All-Share Index (ASI) shows how well the whole Nigerian stock market is doing.
* Industry-specific indices track how different sectors like banking, consumer goods, and oil and gas are performing.
2. Why You Should Invest in Nigerian Stocks
* Chance to Make Money: Share prices can go up over time letting you sell for a profit.
* Cash from Dividends: Lots of companies give some of their earnings to shareholders.
* Beat Inflation: Stocks often grow faster than inflation in the long run.
* Own Part of a Company: When you buy shares, you own a piece of that business.
* Spread Your Risk: Adding stocks to your investments can lower your overall risk.
* Economic Growth Participation: Stock market investments allow people to take part in Nigeria’s economic growth.
3. Key Steps Before Investing:
* Financial Planning:
* Figure out your investment aims how much risk you can handle, and how long you want to invest.
* Make a budget and set aside some of your savings to invest.
* Build up an emergency fund before you put money in stocks.
* Don’t invest cash you’ll need soon.
* Learning and Research:
* Get to know the basics of stock investing, including how to analyze companies and market trends.
* Look into different businesses and industries to find good investment options.
* Keep up with market news and what’s happening in the economy.
* Check out resources like the NGX website, money news sites, and books about investing.
* Looking at Risks:
* Know the dangers of stock investing, like market ups and downs, risks with specific companies, and economic threats.
* Think about how much risk you’re okay with and pick investments that match.
* Spread your investments around to lower your risk.
* Picking a Stockbroker:
* Choose a well-known licensed stockbroker that’s signed up with the NGX and SEC.
* Think about things like fees, trading tools, research they offer, and how they treat customers.
* Get advice from people you trust, like friends, family, or money experts.
* Check if the broker is registered with the SEC.
* Setting Up a Stockbroking Account:
* Fill out all the papers the stockbroker needs, including KYC forms.
* Show proof of who you are and where you live.
* Put money into your stockbroking account.
* Get your CSCS account number.
4. How to Buy Shares:
* Looking into Stocks:
* Basic Company Check: See how healthy a company’s money is how well it’s run, and how its industry looks.
* Look at money reports (what they own and owe, what they earn, and how cash moves).
* Check important money numbers (stock price compared to earnings how much they owe compared to what they own how much they earn compared to what they’re worth).
* Think about what makes the company special and how it might grow.
* Chart Study: Look at old prices and how many stocks were bought and sold to spot trends.
* Use charts and special tools (like average prices over time how strong the stock is).
* Find where prices tend to stop going up or down.
* Look for special shapes in charts (like head and shoulders, or double tops).
* News and What People Think: Keep up with market news how the economy is doing, and what investors feel.
* Telling Your Broker to Buy:
* Call your stockbroker and tell them:
* The company name or its short code.
* How many shares you want to buy.
* Order type (market order, limit order, stop order).
* Market orders go through at the current market price. Limit orders happen at a set price or better. Stop orders kick in when a certain price is hit.
* Trade Execution:
* Your stockbroker will carry out the order on the NGX trading platform.
* You’ll get a trade confirmation from your stockbroker.
* Settlement:
* The CSCS settles the trade within three business days (T+3).
* The CSCS account gets credited with the shares.
* Getting Share Certificates (If You Want):
* Most shares now live in the CSCS, but you can ask the company’s registrar for physical share certificates.
* This often takes a while, and doesn’t happen as much these days.
* Keeping an Eye on Your Investment:
* Check how your portfolio’s doing .
* Keep up with company news and what’s happening in the market.
* Adjust your portfolio when needed.
5. Order Types:
* Market Order: An order to buy or sell shares at the price right now. This order happens right away but the price might change.
* Limit Order: An order to buy or sell shares at a set price or better. Buyers execute buy limit orders at the limit price or lower. Sellers execute sell limit orders at the limit price or higher. This order type gives you control over price but might not go through if the market price doesn’t hit the limit price.
* Stop Order: An order to buy or sell shares when the market price hits a certain level. Buyers place buy stop orders above the current market price. Sellers place sell stop orders below the current market price. This order type helps to cut losses or protect profits.
* Stop-Limit Order: A mix of a stop order and a limit order. When the price hits the stop price, it sets off a limit order. This order type gives you both price control and protection from losses.
6. Investment Strategies:
* Value Investing: Finding companies that are worth more than their current price and have strong basics.
* Growth Investing: Putting money into companies that have a good chance to grow a lot.
* Dividend Investing: Buying shares in companies that have a track record of paying steady dividends.
* Index Investing: Putting money into index funds or ETFs that follow a specific market index.
* Sector Investing: Zeroing in on particular industries or sectors expected to beat the market.
* Dollar-Cost Averaging: To invest a set amount of money at regular times, no matter the market price.
* Long-Term Investing: To keep investments for a long time to gain from growth over years.
* Short-Term Trading: To buy and sell shares often to profit from quick price changes. This needs more market watching and brings higher risk.
* Emotional Investing: When you let feelings guide your investment choices instead of facts, you’re likely to end up with bad results.
7. Key Considerations and Risks:
* Market Volatility: Stock prices can swing a lot in a short time.
* Economic Risks: Shifts in economic factors, like inflation, interest rates, and GDP growth, can affect the stock market.
* Company-Specific Risks: Things like bad management, money troubles, and tough competition can hurt a company’s performance.
* Liquidity Risk: Some stocks might not trade much making it hard to buy or sell shares .
* Information Asymmetry: Some investors might know more than others creating an unfair advantage.
* Regulatory Risks: New government rules can shake up the stock market and specific industries.
8. Tax Implications:
* Capital Gains Tax: When you sell shares and make money, you have to pay tax on those profits.
* Dividend Tax: Companies pay out dividends, and the government takes a cut of that money before it reaches you.
* To understand how taxes affect you , it’s best to talk to a tax expert.
