It is not necessary to have to physically go to a stock exchange in order to be able to buy stocks in Nigeria. It is possible to open an investment account and make payment and purchase of the stocks via the help of a stockbroker or investment platform on your mobile phone.
At first glance when I began analyzing the stock market, the whole process seemed much more complicated than it actually was. There were the stockbrokers, NGX, CSCS, account numbers and other things that I did not understand. However, when you simplify it all, purchasing shares is a relatively easy process.
Select stockbroker → Register an account → Verify yourself → Make deposits → Select stocks → Buy the stocks.
For you to purchase shares quoted at the Nigerian Exchange (NGX), you have to make your purchase through a registered stockbroker or trading platform. You do not log onto NGX directly to make your purchase. The stockbroker facilitates your trade, while the CSCS (Central Securities Clearing System) is the system that makes it possible for you to own and settle your securities.
In this guide, you will learn how to buy stocks in Nigeria. You will be shown how to do so and the requirements, starting amount, platforms or apps to use, fees involved, how to sell your stocks, and other details to look out for before investing in any company.
Before You Buy: A Quick Disclaimer
Buying stocks may prove beneficial in making you earn more money; however, you also stand a chance of losing money. Stock prices may increase or decrease depending on the market situation and previous history does not necessarily imply that there are profits in the future.
This information should be used for general education and information. This is not an advice on financial or investment decisions for you. I am not recommending any stocks for purchase, and I am not guaranteeing that you will earn money.
Prior to investing in stocks, ensure that you understand the firm, the associated risks, the fees and the trading platform. Never invest money that you cannot afford to stay invested or even risk losing. When in doubt, consult a professional financial advisor.
I will also direct you to some resources where you can review your broker, platform and many more before you trade stocks.
What Does It Mean to Buy Shares?
Imagine your most loved firm in Nigeria. You use their goods, encounter their branches or hear others discuss the firm. Imagine yourself owning a fraction of such a firm.
This is what purchasing shares entails.
A share is a unit of ownership in a firm. Whenever you purchase shares of a firm which is publicly traded in Nigeria Exchange (NGX), then you become a shareholder of that firm. Even though your ownership of the firm may be very minimal, the point remains that you own the firm in some way.
You do not necessarily have to operate the firm or sit in their boardroom. All you do is simply purchase some shares of the firm.
Where Do Shares Come From?
Here, you will learn the term IPO, an abbreviation for Initial Public Offering.
Suppose a privately owned company wants to raise money from the general public for growth purposes. The company could do so by issuing its shares to investors for the first time. Such an issue of shares is referred to as an IPO.
The IPO is just one of the ways in which a company becomes publicly listed. Once the shares have been listed on NGX, then investors would trade such shares using the stock market.
Thus, here we have two easy cases to understand.
Investors can purchase shares from a company issuing its shares to the general public for the first time in an IPO. Or an investor can purchase shares from another investor at a later stage after listing using the stock market.
In both cases, the investor will be purchasing a piece of the company’s ownership.
One thing that you will always hear people saying is that IPOs give an investor an opportunity to “buy shares directly from the company”. While this is an effective way of understanding, the actual process will depend on the offer itself.
How Does Your Share Make Money?
The price of a share fluctuates in the market. For example, if a person buys a share for ₦50 and its price subsequently goes up to ₦70, then the value of the investment has gone up. Conversely, if the price drops to ₦40, the value of the investment has fallen.
A share can earn its owner profits via dividends. This is where a company decides to distribute part of its profit amongst its owners in the form of dividend. Not all companies pay dividends to their shareholders and there is never any guarantee of a dividend payment.
Companies offer shares to raise capital. This capital can be used for various purposes such as expansion, project development, etc.
Why does the price of a share change? Because there is always demand and supply. When more people decide to buy the share, the price can go up. The opposite scenario would be when the number of sellers goes up and consequently the price falls.
A Simple Example of Buying Shares
Assuming the share price is ₦50 and you purchase 100 shares.
You will invest:
100 shares × ₦50 = ₦5,000
Therefore, you would be investing ₦5,000 into that firm without counting on any cost of transactions.
What happens when the share price moves up from ₦50 to ₦60?
The total value of your 100 shares will now be:
100 shares × ₦60 = ₦6,000
You have made ₦1,000 profit from your investment.
However, there could also be a possibility for the share price to move down from ₦50 to ₦40.
In this case, the total value of your 100 shares is:
100 shares × ₦40 = ₦4,000
And your investment has lost ₦1,000.
This is the basic principle of share purchasing – you purchase some portion of a firm which may gain or lose value over time.
How Does the Nigerian Stock Market Work?
It will be easier for you to buy stocks in Nigeria once you know who does what.
You don’t buy stocks from NGX (Nigerian Exchange).
There are several organizations that help each other to facilitate buying stocks in Nigeria.
It’s best to visualize the process as follows:
NGX creates the market -> Stockbrokers trade on your behalf -> CSCS stores and settles your shares -> Registrars manage your shareholder records and dividends.
This is what they all do.
Nigerian Exchange (NGX)
The Nigerian Exchange Limited (NGX) is the market through which the shares of companies listed are bought and sold.
It allows for shares to be listed for investors to trade the same. Once the shares of a particular company are listed, they get to change prices as a result of buying and selling.
For instance, when you wish to purchase 100 shares from a company listed at NGX, you will not visit NGX and place your order.
You will have to approach your stockbroker.
Stockbrokers
Stockbroker is the intermediary between you and the stock market.
As soon as you notify your broker that you wish to purchase 100 shares of a company, he will place your order on your behalf.
The stockbroker is licensed to make buys and sells of securities for the investors and usually, they earn commissions or fees from the services rendered.
This is why it is crucial to select the correct stockbroker. Ideally, one should choose a credible and user-friendly platform with clear information regarding the fee structure.
The NGX keeps a register of its Trading License Holders, hence, before choosing a broker, ensure that he is listed in the NGX register.
Central Securities Clearing System (CSCS)
The Central Securities Clearing System (CSCS) is yet another critical component of the Nigerian stock market.
In essence, CSCS is the system that enables tracking of your securities and facilitates clearing and settling of transactions.
The shares you purchase via your stockbroker are not kept in your broker’s application like money in your wallet. Your securities are held and settled via the market’s central architecture.
You usually have to register for an account with your stockbroker prior to opening a CSCS account. Investor identification information is required by CSCS at account registration as well.
That’s one of the reasons why you might come across phrases like CSCS account, CHN, and investor account whenever you decide to invest.
No need to fret at first glance. We will explain these phrases further.
Registrars
Registers maintain information on behalf of the shareholders of a business entity.
Registers could be used to handle activities such as shareholder record maintenance, dividend processing, and corporate activities communication among other activities.
In case of a declaration of a dividend by a company, registers might be able to handle the whole process of processing the dividend payments to eligible shareholders.
This proves very helpful in case one is a shareholder in many different companies where all the information has to be kept separately in a separate system.
How Everything Connects
Now, let us combine all the pieces of the puzzle.
Suppose you would like to purchase 500 shares of a company which is listed on NGX.
What would be the process?
Firstly, you need to set up an account with the help of a stockbroker, deposit cash and make an order via a web portal or application of that stockbroker.
Then, your stockbroker will send your order to the market for execution. If there is a match for your order from the side of a seller, the trade will take place.
The clearing and settlement of the transaction will be done by the market infrastructure, with the participation of CSCS.
You become the owner of shares.
Thus, the scheme of transactions goes like this:
You → Stockbroker → NGX → CSCS
Sometimes, the registrar also appears when dividend payments or shareholder rights issues occur.
After we get familiar with these four parties, the buying of shares in Nigeria becomes a straightforward procedure where different institutions perform their own functions.
How to Buy Shares in Nigeria
The acquisition of stocks in Nigeria is actually quite easy, despite what you might think at first. As long as you find yourself a credible stockbroker, the next step is all about getting your account ready and making that transaction.
Here is how the process works.
1. Figure Out What You Wish to Invest In
When setting up an investment account, make sure to have some basic notion of what you wish to invest in.
It could be stocks of banks, telecommunications, consumer goods companies, industries, or any other organization listed on the Nigerian Exchange.
It would be incorrect to ask from the beginning: “Which share will make me rich?”
Instead, consider asking yourself:
“What do I buy, and what makes me want to own it?”
It is important to analyze the company’s activities, its financial performance, dividends, liabilities, growth perspectives, and prices for its shares. And, of course, its risks.
You do not have to become a full-fledged stockbroker before making your first investments. But you must know enough about the companies to answer the question why you decide to invest in them.
2. Select a Stockbroker or Investment Platform
The next step involves selecting a stockbroker or investment platform through which you will have access to Nigerian stocks.
The choice will likely be between traditional stockbrokers with an online trading platform and new investment apps.
Before making the choice, consider:
- If it is registered or affiliated with a registered stockbroker
- Trading costs and other charges
- Funding and withdrawing ease
- Customer support
- If it allows you to trade NGX-listed stocks
- The way it manages your stocks and account details
There is an NGX list of registered Trading License Holders that you can refer to while choosing a stockbroker.
3. Open an Investment Account
After selecting the platform of your choice, create an account.
You will generally have to fill in your personal information and undergo a Know Your Customer (KYC) process.
This could involve giving your personal information such as your name, date of birth, contact details, bank details, BVN and means of identification.
This may vary from one brokerage platform to another depending on which one you have selected.
4. Finish your verification process
Having opened an account is just the beginning step.
In order to use your trading account, your broker needs to verify you as an investor.
This may include providing identification and any other documentation required by investors.
Some examples of identification that CSCS accepts in its process are a National ID, international passport, driver’s license, and voter’s card.
There may be other requirements from your broker.
Never send your documents to individuals posing as agents. Use the official website or application of the broker of your choice.
5. Fund Your Account
Once your account gets approved, there must be money in your investment account in order to purchase stocks.
The exact method of funding will depend on the website. It may allow direct deposits of funds from your bank account to your investment account.
When making your first stock purchase, there is no need to deposit all of your savings into the market.
Choose the amount that you feel comfortable with.
6. Identify the Stock You Wish to Purchase
And now for the exciting bit.
You can find the stock you wish to buy through your broker’s application or online trading system.
Some data which could appear includes:
- Current stock price
- Previous stock close price
- Stock price change
- Volume
- Orders to buy and sell
- Data on the company
Don’t rush into this part. Just because a stock price is increasing or just because an individual says a specific stock will soon “fly,” doesn’t mean you should rush.
7. Determine the Number of Shares to Buy
Having determined the share’s price, now determine the number of shares to buy.
For instance, if the price of a share is ₦50 and you are buying 100 shares:
100 × ₦50 = ₦5,000
Be aware that the amount paid may be more than the share’s value since transaction fees will apply to your purchase.
8. Make Your Purchase Order
Specify the number of shares you want to buy and make an order.
Depending on the specific platform, you may have a variety of orders to choose from.
For a beginner, the most crucial point to realize here is that your order is an order to buy the share under some conditions at some price.
9. Verify Your Transaction
After completion of the transaction, verify its details.
For instance, you need to check how many shares you have bought, the price and any charges involved.
Save your transaction documents since you will need them later in case of any problem with your broker or to know how much you have made or lost on the investment.
10. Track Your Investment
Purchasing the shares does not mark the end of the whole process.
You must keep track of the company and understand what is happening to your investment.
This does not mean checking the share prices every five minutes.
Instead, you need to look at the significant events such as company results, dividends, significant announcements, debts, management change and economic changes.
Your aim is not to panic every time the price changes. Your aim is to understand why you are holding those shares and whether it is still a good idea.
What Do You Need to Purchase Stocks in Nigeria?
You do not need a lot of money or an intricate financial structure to begin investing in stocks in Nigeria.
All that the average beginner needs to begin purchasing stocks in Nigeria is an account with a stockbroker, proper identification, information about an investor, and the necessary funds for the initial purchase.
Stockbroker or Trading Platform
The requirement here is to open an account with a stockbroker or trading platform, which will give you access to the stock market in Nigeria.
This stockbroker is what connects you to the market and it is not possible just to have an NGX account and start buying stocks.
You should pick a licensed stockbroker who will give you access to buy and sell stocks.
Proper Means of Identification
Identification is usually one of the things you will need when opening an investment account.
This will depend on the stockbroker and may involve a National Identification Number document, international passport, driving license, or voter’s card.
Bank Verification Number (BVN) and Other Personal Data
Your broker will also ask for data such as your Bank Verification Number (BVN), date of birth, phone number, email address, residential and bank information.
This information assists the broker as well as other parties that participate in the market to verify your identity.
The CSCS needs investor’s information as well as part of the account processing procedure.
Bank Account
You will have to have an option of sending and withdrawing money from your investment account.
Bank account can be associated with your investment account for transactions such as depositing money and receiving some payments.
Please make sure that the information that you give your broker is accurate and correct.
Money to Invest
Lastly, you need to have money to invest in the stocks.
The amount required depends on the firm you are interested in, number of stocks you wish to purchase and transaction costs involved.
You do not need millions of naira to begin.
You can start small, get accustomed to the market dynamics and increase your investments gradually.
The key thing is not just having enough money to invest in stocks. The key thing is knowing what you are investing in and being ready for price fluctuations.
Does It Cost ₦100,000 or ₦1 Million to Get Started?
No.
One does not have to pay ₦100,000 or ₦1 million in order to get started.
One can make a smaller initial investment and grow their holdings incrementally.
What is even more important is forming good investment habits as opposed to making one large investment at once.
For instance, one can start with ₦10,000, familiarize themselves with how their platform works, keep track of the firm and put in more money after becoming comfortable with it.
Don’t Forget About Additional Charges
The cost of the investment is not necessarily the share price multiplied by the number of shares to be purchased.
One has to consider the possible fees charged by the broker and other participants of the market for their services.
This means that one needs to have slightly more money than the total value of shares that they intend to purchase.
Charges may also vary, so it is wise to find out the current ones charged by one’s broker on their platform. For example, CSCS has recently changed its applicable charges.
Begin with the Money You Have
There is no award for investing the greatest amount of money into the stock market.
At the beginning, your main priority should be getting acquainted with the stock market, gaining knowledge about the companies you are working with and creating a strategy.
It is possible to begin modestly.
It is not important to purchase as many stocks as possible. It is important to make the right investment for you.
How Much Money Is Needed To Buy Stocks In Nigeria?
The most frequently asked question amongst beginners is, “How much money do I need in order to invest in stocks in Nigeria?”
The answer to the above question is: There is no set amount of money. This is due to the fact that everything depends on the type of stock, the amount of stock that you want to buy and transactions costs.
What is the Cost of Buying One Stock?
There is no fixed price for stocks in Nigeria. In one case, there is a company offering stocks at ₦20 while the other will sell stocks worth ₦500 or more. Therefore, if you had ₦10,000 to spend in investing, the number of stocks you can buy will depend on the price of the stock in the market.
If the market price of one stock is ₦50,
₦10,000 ÷ ₦50 = 200 shares
Thus, you will be able to buy 200 shares before transaction costs if the buying is successful.
However, in the case where the cost of the stock is ₦200,
₦10,000 ÷ ₦200 = 50 shares
The Cost of Shares
The most expensive item in the calculation will be the cost of the shares.
Let’s say you buy 100 shares at a price of ₦50 per share:
100 x ₦50 = ₦5,000
₦5,000 is the cost of shares without any additional fees included.
Stock Purchases and Sales Commission
You can also be charged commission by your broker on executing a transaction.Other fees can be incurred as a result of the market structure and regulation.Thus, you cannot assume that buying shares at a value of ₦5,000 will cost you exactly ₦5,000.Charges will also change from time to time.
Is There a Charge You Haven’t Heard About?
There should be nothing misleading about the fees you have to pay.Before you invest and/or deposit money into your account, check the fee structure of the platform you are going to use.
Here are some examples of possible fees:
- Purchases of shares
- Sales of shares
- Maintenance
- Deposits
- Withdrawals
- Other fees in relation to the market
The more transparent the fee structure of the platform, the better.
Determination of Total Cost
For example, when you intend to buy shares valued at ₦20,000.
Then it will not be;
₦20,000 = total cost
But
Value of shares + relevant cost incurred = total cost
The relevant cost is provided either prior to or after the transaction depending on whether the trading is done using the traditional method or the digital way by your broker.
As the cost varies, it is advisable to check the current fee schedule rather than relying on some obsolete data from some article or social media.
The Best Platforms for Buying in Shares in Nigeria
The number of methods used to invest in shares in Nigeria is quite significant. You may buy stocks through the help of a regular stockbroker that has its online platform or with the help of a dedicated investment application.
As I am risking my money, I need to know who the platform operator is, how my trades are conducted, and the cost of using this service.
However, I will not go for a platform just because an application is visually appealing or recommended by people on social media platforms.
1. ARM Securities
ARM Securities is a conventional stockbroker in Nigeria that allows investors to trade in Nigerian equities and Treasury bills as well as other securities. ARM Securities offers stock trading online using its StockTrade portal and also offers research and investment services. ARM Securities is listed with SEC as a broker-dealer.
Best for: Investors that require a conventional stockbroker with online trading facilities and research capabilities and access to Nigerian equities.
2. Bamboo
Bamboo has evolved from merely being an app that deals with trading US stocks to a platform where one can trade NGX stocks and other global investments. The SEC has also registered Bamboo Systems Technology as a sub-broker.
Recommended For: Beginners looking to invest in both Nigeria and globally from one app.
3. Meristem Stockbrokers
Meristem Stockbrokers is an experienced stockbroker operating in Nigeria and offering access to the capital market of Nigeria. The Meritrade platform offered by Meristem allows you to trade in NGX securities from your phone or computer, as well as to get market updates and trade history. Meristem Stockbrokers is licensed by the SEC and NGX.
Best for: Experienced investors who require a traditional stockbroker with advanced tools and market information services.
4. Trove
Trove now provides stocks, ETFs, bonds, mutual funds, and other investment opportunities, including access to investments in Nigeria. The range allows Trove to be helpful to an individual looking to do more than just buy NGX shares.
Best for: Investors seeking multiple investment opportunities in one place.
5. Stanbic IBTC Stockbrokers
This would be the traditional broker that I’d compare with the other two apps.
Stanbic IBTC Stockbrokers provides an online share trading platform and a mobile stockbroking app, enabling customers to trade shares and bonds online.
Most suitable for: Customers who opt for a more traditional stockbroker instead of an investment app.
Check Your Platform Before You Invest In It
This is definitely one step I would never miss.
When investing through an investment platform, check out its official website and get to know the company behind the investment platform. Get to know the regulatory details of the platform and get to know who the actual trading entity is.
NGX maintains a list of brokers currently in use, while CSCS has details of dealing members as well as market participants.
Investment apps could be just apps that show up on your phone; however, the crucial question here is:
Who is the actual person handling my investment?
Let us consider some platforms and investment apps in particular.
Ways of Choosing the Best Stock Platform in Nigeria
There is no guarantee that the best stock platform will have an eye-catching mobile app or a high-profile advertising campaign.
What you need is the ability to get access to the market, clarity of expenses and ease of management of your investments.
Here is what I would look for before making my choice.
Verify the Regulatory Oversight of the Stock Platform
It should come first.
Make sure that you know who is behind the platform and which registered broker/market participant executes the trade for you.
In case of Nigerian stocks, you want to make sure that your investment goes through the proper capital market channel.
NGX has a list of its Trading License Holders.
Trade Fees Comparison
There might be two platforms providing the same shares for trade but charging you differently.
Take into account the overall fees that apply and not only the commission.
The platform with a bit higher commission might be a better option for you because of better services provided, whereas a really cheap platform might lack the necessary features and support.
Calculate based on your usual investment sum and frequency.
Take a Look at the Shares That Can Be Invested In
All platforms do not necessarily provide the same investment opportunities.
When your aim is trading of Nigerian stocks, take into account whether the platform allows you to deal with NGX-listed shares.
In case you later decide to diversify your investments to other markets, find out whether it is possible with your platform.
Ensure Ease of Use
It is very important.
If the application is complicated when it comes to locating the companies you want to invest in, understanding your portfolio, or placing your orders, then you are most likely going to make mistakes.
The application should be easy to use for the following:
Funding account → Locating stock → Checking price → Placing order → Monitoring investment.
In addition, it should be possible to have access to your transaction history and investment details without reaching out to support all the time.
Fundings and Withdrawals
Before you invest in the platform using your funds, know how you are going to withdraw your funds from the platform.
Ensure:
- How to fund your account
- Available withdrawal methods
- Withdrawal times
- Are there any funding/withdrawal fees
- Is verification of bank accounts necessary
Do not wait until you require the withdrawal of your money to figure out how it works.
Test the Customer Support
Anything could be wrong even with a quality platform.
There may be an issue with the verification of your account. There may be something which needs clarity about the transaction. You might want to ask something related to transactions.
Consider the way that the platform deals with the customer support before you risk your money on that platform.
The investment platform will offer you a transparent way to contact them and sort out the issues related to account or transactions.
Know About the Custody of Your Shares
This is especially crucial.
You must know about the situation after you buy a share.
In this case, it will be your broker who executes the transaction whereas the CSCS will play the crucial role in providing the clearing, settlement and custody infrastructure of the Nigerian securities.
Remember that just seeing the shares displayed in the application does not mean that the application is the same market infrastructure.
Do Not Be Influenced by Promises
In this regard, be wary of those promising to deliver guaranteed profits.
This does not happen in the stock market.
A genuine platform may offer you an opportunity to invest, but cannot promise you that a specific stock will appreciate in value.
When an investment platform claims its best feature as being “You cannot lose money”, you have to pause for thought and ask questions.
A good platform will offer you opportunities to invest but will not require making unreal promises.
Buying Shares via Your Mobile Phone in Nigeria
It is possible to purchase Nigerian shares online without necessarily going to the office of the stockbroker. This can be done on most platforms nowadays, which enable you to buy shares online through your smartphone or computer.
The general process includes the following steps:
Select a platform → Register an account → Verify → Deposit money into your account → Select a share → Make your order.
Selecting a Platform for Share Purchasing Online
First of all, select a broker or investment platform, which provides access to shares listed on the NGX.
You should check the regulation of the platform, fees, shares available, customer services before you sign up to it.
In case you have doubts regarding some broker, it is advisable to look at NGX’s Trading License Holders list.
Create Your Account Online
Visit the platform’s official website or install its official application.
You will have to provide your personal details and go through the necessary KYC procedure. You may be asked for your BVN, banking details, and identification document.
The exact requirements differ from one platform to another.
Funding of Your Investment Account
After your investment account has been created, deposit money into your account through the funding option provided by the platform.
You must ensure that you are depositing money in the official account of the platform.
Do not deposit any money in your personal bank account just because you received contact on WhatsApp or Telegram or any other social networking site.
Look for the Share You Wish to Buy
Navigate to the trading page and look for the company.
You should be able to find details on the company’s shares, which includes its price.
Remember to verify that the company is indeed what you want before you place the order since some companies might have the same name.
Place Your Order
Enter the number of shares you wish to buy and then place the order.
The number of types of orders depends on the platform where you are buying.
After that, check:
- Name of the company
- Number of shares
- Price
- Transaction fees
- Total amount
- Place the order.
Verify That Your Order Has Been Completed
Order placement doesn’t necessarily mean that you have successfully acquired the stocks.
You have to have your order matched and executed.
After that, you should verify the successful purchase by checking your portfolio or transactions history.
It might be useful to keep track of your transactions in case you will need to sell your stocks in the future.
Protect Yourself
Considering that your trading is done via the Internet, you should protect yourself in the same way you do it with your bank account.
Use a reliable password and activate two-factor authentication in case if such an option is available on the platform.
Be also cautious of fraudulent apps or websites that pose themselves as some reputable brokers’ accounts on social media platforms.
When it comes to money, always start from an officially-verified website or application of the broker.
How to Choose a Company to Invest In Before Purchasing Its Stock
Setting up a stock trading account is simple. But making the decision on which company to invest in comes with challenges.
There is no requirement of being a professional investor but having a good understanding of the business is important before investing in it.
Stocks mean ownership of a company. Therefore, before buying, think about:
“Would I be comfortable owning this business in the next few years?”
Know What the Business Is All About
The beginning is always the basics.
What is the business all about? What are its customers? How is it earning money? Why would customers pick it instead of its competitors?
In case you do not have an answer to that in a few lines, you must learn more about the business before investing in its stocks.
Also, knowledge of the industry is necessary. Even though it is a well-established company, it might face issues due to a poorly performing industry.
Examine the Financial Performance of the Business
Then, examine the performance of the business.
Take note of factors like:
- Revenue
- Profit
- Earnings per share
- Debt
- Cash flow
- Assets and liabilities
There is no need for you to know everything from a financial report in a day.
All you have to do is ask yourself this simple question:
Is this business getting better or worse with time?
Consider more than one year, since having one good year will not necessarily make a great investment.
Check the Dividend Payout Record of the Company
If dividend income is your objective, then you should look at the company’s payout history.
Some companies provide dividend payouts regularly, while some keep their earnings in the business.
Having a high dividend payout now does not mean that the company is an ideal investment.
You should be able to figure out if the business is still capable of generating sufficient earnings for its payout.
And also, you have to take note that dividends are not guaranteed.
Take a Closer Look at the Company’s Debt
Being in debt is not a bad thing per se.
Many firms use debt to finance their expansion, buy equipment, etc.
It all depends on how well the company manages its debts.
Take into account its revenues, profits, and cash flows and see if the company is growing and at the same time, is able to manage its debts well.
Think about the Share Price
Not every good company is a good investment regardless of the price it commands.
Suppose there are two firms with similar features – they both make profits and grow, but the shares of one firm are already very high in comparison with its revenues and prospects, then perhaps buying its shares is not the best decision.
This is why you should keep two different questions in mind:
Is this a good company?
And
Is this a good price for the share of the company?
Examine Dividend History
When dividends are important to you, consider the history of dividends of the company, rather than concentrating on the last dividend payment.
It should be remembered that a company’s history of dividends payments does not necessarily mean that it will continue paying dividends in the future.
Compare Companies within an Industry
You cannot analyze a company by itself, without comparing it to its competitors.
For example, if you are interested in banks, analyze several banks. And if you are considering investments in consumer goods companies, compare several of such companies.
Compare the companies according to the following criteria, among others:
- Profits
- Revenue growth
- Debt
- Dividends
- Valuation
- Propects
Think About What You Are Paying for the Stock
Even a great company does not necessarily make a cheap investment.
If the stock of a company is expected to rise very quickly, its price might already incorporate this expectation.
Therefore, do not ask yourself only:
“What is this company like?”
But also:
“What is this company like at this price?”
The tiny difference will matter greatly when calculating your potential profits.
Do Not Buy It Simply Because Other People Buy It
Here is an easy mistake to make.
The stock is going up. The person shows you the screenshot with his profits. Someone claims that the price will rise twice.
You suddenly want to invest in the stock.
Stop for a minute.
Popularity is not a trading strategy.
If you are buying the stock because other people are buying it and you cannot say more, you have to research better.
Design Your Very Basic Checklist
It does not have to be complicated.
Before buying a share, think:
- Do I know about the company?
- Is the company profitable?
- Is it financially sound?
- Is it priced reasonably?
- What could possibly go wrong?
- Why do I want to invest in this company?
If you can’t answer these questions, research more.
The goal is not to forecast the next day’s winner from the Nigerian stocks. The goal is to make an investing decision that you can stand by even when the market goes against you.
How to Purchase Shares for Beginners
This is your first time purchasing shares, and there is no need for you to know everything about the stock market before you start.
You only need to have a grasp of the basics of purchasing, proceed cautiously, and learn as you go.
Start Small
Your first investment does not have to be huge.
Start with an amount that will give you room to learn without having to put a lot of pressure on your financial situation.
For instance, you could start with ₦10,000 or ₦20,000, depending on what stock you wish to purchase and platform requirements.
The reason for the small initial amount should not be to make money.
The purpose of this small initial amount is for you to learn how to trade, sell, get dividends, transactional fees and manage portfolios.
Purchase Companies You Understand
Do not purchase stocks because someone told you that the stock is going to go up.
Start with the companies you understand.
Using the product or service from a company may be a starting point to conduct some research, but it does not automatically mean that it is a good stock to purchase.
Think Long-Term
Stock prices fluctuate.
The value of your investment might be lower tomorrow than it was today. This doesn’t necessarily mean that you’ve made a bad investment.
If you are making investments for the long term, you should be thinking about the fundamental aspects of the business rather than fluctuations in the price every day.
This is not to say that you should buy and keep every stock indefinitely. It is to say that you need to have some basis for buying it and know when you will stop having that basis.
Don’t Put All Your Money in Stocks
Stocks are only one form of investments.
It is not wise to invest the money which is required to pay your rent, college fees or for an emergency fund, etc. in the stock market just because you are earning better returns through it.
Diversify As You Go
As you gain confidence, you can think of diversifying your investments into multiple firms and industries.
The logic behind that is straightforward – if one firm or industry underperforms, your whole portfolio is not dependent upon that alone.
But it doesn’t mean that you start investing in scores of companies to claim yourself a diversified investor.
Sometimes a small portfolio of businesses known to you is better to keep track of than scores of stocks unknown to you.
Keep Learning
Investing in your first share is just the starting point, not an ending point.
Learn how to read financial statements. Learn dividends. Learn valuation. Learn how to follow up on company news. Learn the Nigerian economy and its impact on businesses.
The better will be your decisions with each passing day.
However, the most important beginner’s rule to remember is this one:
Do not put money at risk of losing which you cannot afford at all due to your fear of missing out on something.
Because there will always be another chance.
How to Sell Shares in Nigeria
Share purchasing is just one aspect of investment. At one time or the other, you will want to sell some or all of the shares that you purchased.
The steps will be the same as those you follow when buying shares but in this case, you are going to put in a sell order instead of a buy order.
Why do You want to Sell?
Before pushing the sell button, make sure you know why you want to sell.
The reasons why you want to sell can be many including:
- Need for money
- Reaching of target price of the share
- Change in business environment of the company
- Loss of confidence in the investment
- Relocation of your funds to another investment
- Profit taking
Do not sell just because the price has fallen for a short while.
Access Your Trading/Investment Account
Open the trading account or platform where you purchased the shares.
Look at your portfolio and locate the company that you want to sell out.
You can easily view the quantity of shares that you own along with the value of the shares.
Make the Sell Order
Choose the shares and click on sell.
Then enter the quantity of the shares that you want to sell.
For instance, if you have 500 shares, you do not have to sell them all at once.
You can sell 100 shares while holding the rest 400 shares.
Wait for the Execution of Your Order
Similar to buying, selling does not automatically guarantee the execution of your order.
Your order must be matched by some other trader according to the prevailing market conditions.
Get Your Money
After the transaction is completed and the settlement process has been carried out, the proceeds will become available depending on how your broker settles and withdraws his proceeds.
Your money will then be able to be withdrawn into your bank account or reinvested into something else.
Keep in mind that making profits by selling shares will involve transaction costs too, so you may end up with different total amount of money than the nominal price of the share you sold.
Do Not Confuse Profit with Cash
This is a very important point for novices.
For example, if you purchased shares for ₦50,000 and their price increased to ₦70,000, you currently have an unrealised profit of ₦20,000.
This means that you did not receive your ₦20,000 yet.
Once you sell those shares, your profit will be realised based on the transaction cost and your selling price.
The same goes for the loss.
Let us say your shares fell from ₦50,000 to ₦40,000 – this means you have an unrealised ₦10,000 loss.
Once you sell those shares at that lower price, you realise your loss.
What matters most is understanding what you are doing when you sell.
How to Receive Dividends on Nigerian Stocks
As a stock buyer, there are two primary ways through which you can earn from your stocks: your share prices may appreciate or the company pays you dividends.
A dividend is money that is paid by a company to eligible shareholders as part of the profit distribution of the company. However, companies are not obligated to pay annual dividends and no dividend is ever guaranteed.
How Does it Work When a Company Pays a Dividend?
When a company decides to pay a dividend, the amount to be paid and other critical dates related to the payment are communicated.
You do not have to sell your stocks to earn dividends.
The dividend is automatically processed on your behalf as long as you are an eligible shareholder at that particular qualification date.
How do You Receive Your Dividend?
The process of receiving your dividend is usually handled by the company’s registrar and the investor payment system.
The money is usually paid directly to your bank account.
That is why it is important to update your shareholder information.
Do All Stocks Get Dividends?
No.
Some companies offer dividends regularly. While others offer dividends occasionally, there are some companies that offer no dividends at all.
The company could decide to reinvest its profits into expanding its business.
So do not purchase a stock just because you will get a dividend every year.
Is It Possible for You to Get Dividends without Selling Your Stocks?
Yes.
Getting dividends does not mean you have to sell your stocks.
For instance, let us assume that you have 1,000 stocks in a company that offers dividends of ₦2 per stock.
The dividends you will get are:
1,000 × ₦2 = ₦2,000
You will get this while still retaining your 1,000 stocks.
What If You Did Not Get a Dividend?
In case you were supposed to get a dividend but failed to get one, start by checking your investor details and bank account.
Alternatively, you could contact the company’s registrar or your broker to get more information.
This is yet another reason why you should maintain accurate investment and personal information.
Avoid Relying on High Dividend Alone While Choosing Stock
While a large dividend yield appears to be a positive aspect, it should not be the sole basis of an investment decision.
Consider the earnings, cash flows, debts, future potential, and previous track record of dividends of the stock company as well.
It is possible that the stock providing a larger dividend today may not necessarily provide better returns in the long run as the quality of the business deteriorates.
Dividends are just rewards from a successful business; nothing more.
Checking Your Previous Shares Bought
There may be times when you may have previously invested in stocks but are unsure about the stocks you have purchased.
This may prove handy in cases where you have multiple stock brokers, you have changed your contact and/or banking details, or you have bought the shares years ago.
Check Your Brokers’ Platform
A good place to begin is with your existing brokers’ mobile application or online trading platform.
Simply log into your account and access the portfolio or holdings section.
Typically, the following will appear in your platform:
- Stocks that you hold
- Numbers of shares
- Latest value
- Buy and sell transaction history
Please note that the value displayed in your application fluctuates with the market price.
Check Your CSCS Account
There are other places where your investments may be stored.
As stated earlier, CSCS is responsible for the custody and settlement of securities in the Nigerian capital market. Your investor details could be useful to verify your holdings.
In case you do not know your CSCS details, please contact your broker or CSCS via their official channels and not a person who wants to assist you in recovering your shares.
What if You Have Already Purchased Shares Several Years Ago?
It is here that the story gets even more exciting.
You might have purchased shares several years ago using a conventional stockbroker, received shares from an offer to the public or received investments from a family member.
Do not think that these shares have magically vanished if you can no longer find them on your investment app.
Bring forward all the documents, transaction slips and other records about those shares and get in touch with the respective broker, CSCS, or registrar.
What if You Do Not Remember Which Stockbroker It Was?
Let us first begin with what you have left.
Previous transaction slips, records of receiving dividends and correspondence with shareholders will give you the clue about your broker or registrar.
The company’s registrar can help with matters related to shareholder records and dividends.
Do not listen to some stranger on social media saying that he will “help you recover” your lost shares.
Always Update Your Investment Records
After locating your shares, ensure your personal and bank information is up to date.
This will be very important to receive any dividends or other payments to your account.
It is also recommended to have a record of all your purchases, like:
Company → Number of shares → Purchase price → Date of purchase → Other charges
Later on, you will appreciate the effort you took.
Common Beginner Investor Mistakes
It is not difficult to purchase shares. Making smart investing decisions requires more time and experience.
Here are some mistakes that new investors need to avoid.
Purchase Based On Recommendation
Your friend gained some money from an investment in a certain stock, and now you purchase it too.
A WhatsApp group says that a share is going to go up soon, and so you decide to buy it.
This way will lead you straight into losing money.
A recommendation could be a good start, but you should do your own research before purchasing shares.
Pursuing an Upward-Moving Share
A particular share has increased by 20% within just a few weeks.
It appears to be the center of attention among people.
You purchase it because you do not want to miss out.
But just because a share is upward moving does not make it a good choice of purchase. It might already have been priced very highly and can decrease very quickly too.
Do not mistake past performance with guaranteed future results.
Investment of Money that is Required in Short-Term
The amount of money that you require for paying rent, educational fees, or any emergency or some other purpose should not be considered long-term investment capital.
The price of shares may decrease, and you might be forced to sell it under undesirable circumstances when you would need the money at once.
Invest only with money that you can afford to stay invested in.
Allocating Entire Portfolio in One Business
All your money is invested in one business.
If anything happens then your investment can suffer a great deal.
As you continue to grow your portfolio, consider diversifying your investments in different businesses.
Not Paying Attention to Fees
It might seem like an insignificant sum for one deal.
But constant transactions can lead to a significant number of costs.
Be sure to know all fees charged by your broker before trading.
Watching Your Portfolio All the Time
The value of your shares will fluctuate.
Some days will be good; some will be bad.
If you observe the fluctuations in prices too often, it is likely you will base your decisions on emotions.
In case if you have invested in a company because you think it will grow in a few years, a bad day at the market does not necessarily mean anything.
Believing That Shares Will Always Grow
They won’t.
You can actually lose money investing in the stock market.
It is possible that the company or even the whole industry performs poorly, the economic situation changes or investors lose faith.
Beware of Guaranteed Returns
Exercise extreme caution whenever somebody offers guarantees on returns from stocks.
There is no legitimate stock investment in which the returns will be guaranteed to go up.
Whenever you are told you will have guaranteed profit with zero risk, pause for thought before committing any money.
What is your defense as a new investor? Just do your homework and know your investment.
Is Buying Shares Safe in Nigeria?
Buying shares through the Nigerian stock market is a legitimate way to invest, but there are risks attached to any stock investment.
This actually presents two separate issues:
Is the method legitimate? Yes, if you invest through the right channels and legitimate brokers.
Do you stand a chance of losing money? Yes, you can lose some or all of your money.
Employ a Legitimate Stockbroker
Using a licensed broker is one of the simplest ways to mitigate avoidable risks.
There is a directory maintained at NGX for the list of registered Trading License Holders. Be sure to verify your broker before making an account or transferring any funds to him/her.
Do not take an application as legitimate just because it has a lot of downloads and has a professional website.
Appreciate That Share Prices May Fall
A very reputable company may still have its shares’ prices drop.
This might be due to company performance, economic trends, rate of interest, sector issues, stockholder sentiments or even other occurrences.
For instance, when you purchase ₦100,000 worth of shares and their prices drop to ₦80,000, your shares are valued ₦20,000 lower than when you bought them.
Guard Against Investment Scams
You should also guard against those who are posing as legitimate stock investment providers.
You should be wary if someone:
- Guarantees profit returns
- Persuades you to make investments urgently
- Asks you to pay them through their personal accounts
- Presents unusually good profit returns with minimum risks involved
- Cannot tell who oversees the investment
- Approaches you via an unofficial social media account
When unsure, always go directly to the official website of the broker or market organization rather than a link provided by someone else.
Protecting Your Account
Your investment account contains sensitive financial details and therefore should be well protected.
Ensure that your account is secured by setting a good password and other features like two-factor authentication.
Avoid providing your password or PIN or any authentication details to anyone who claims to be a broker’s agent.
Your broker does not need your password even to assist you with some problems with your account.
Diversify Your Portfolio
Though even having chosen a reputable broker, there is still the risk of losing money on your investments.
Diversifying means decreasing your dependence on one company by investing in multiple assets.
However, diversifying your portfolio will not guarantee safety from loss. Should the market decline, many assets in your portfolio can decline at once.
And Are Stock Investments Worth It?
Whether they are or not depends on your purposes and willingness to take risks.
Though shares allow making profits and earning dividends, their value can decline.
The most reasonable strategy would be to find a reputable platform and not search for that share that will not drop in its price, because such a share does not exist.
Invest in something you understand and diversify where possible using the money you can afford losing.
Stocks versus Savings versus Treasury Bills
When it comes to growing your money, there are several ways to do it.
You can keep your money in savings accounts, Treasury bills or buy stocks. All these forms of investments differ significantly, therefore, choosing one depends on your needs and risks you are ready to bear.
Stocks
Buying stocks means becoming an owner of a business.
Your possible gains can be as follows:
An increase in the price of the stock
Dividends
However, your investment can decrease as well.
Therefore, stocks are more appropriate for the money you can invest for a certain time period and can stand the changes in the market.
Savings Account
A savings account is a much easier form of investment.
It involves placing your money in a bank and earning some interest while having access to your money.
Thus, the savings are more convenient when it comes to the money you will need soon, like emergency fund.
The downside is that the gains are usually not as high as those expected from investing in the long-run assets like stocks.
Treasury Bills
Treasury bills are short-term government securities.
You do not have an ownership stake in a firm; instead, you are lending funds to the government for a certain period of time and getting interest from it.
These investments are relatively safer compared to stocks, but there is some element of risk in it too.
Treasury bills can come handy when capital protection and time frame are your primary considerations regarding investments.
Which One Is Right For You?
There is no clear winner.
Here is why:
| Option | What you own | Risk | Best suited for |
|---|---|---|---|
| Savings | Bank deposit | Lower | Short-term needs and emergency money |
| Treasury bills | Government security | Generally lower | Short-term or defined-term investing |
| Shares | Part of a company | Higher | Long-term growth and income potential |
It is possible to have more than one as well.
For instance, you could hold emergency money in your savings while using Treasury bills for investing money for a certain duration and using some of your money to invest in stocks.
What is key here is that you match the type of investment with the function of the money.
You should never put your emergency funds in stocks just because you wish to earn more. Nor should you hold all of your naira investments in savings accounts just because stocks are foreign to you.
Different types of money serve different purposes.
Commonly Asked Questions Related to Purchasing Stocks in Nigeria
For how long do I hold the stocks?
There is no set period that everyone holds their stocks for. It all depends on the reasons for buying the stocks and the objective of your investment. When investing in growth, you may end up holding stocks for many years. But you must be reviewing your investment from time to time and not hold onto something blindly forever.
Is there any need to pay tax for the shares in Nigeria?
Taxation might depend on the transaction, income, and laws that apply at the time. Don’t depend on the information provided in an outdated investment article when it comes to taxation.
Can I purchase stocks of Nigerian firms from abroad?
It is possible depending on your residence and the broker you choose, and the regulations for account opening. If you reside outside Nigeria, make sure you know the current requirements for account opening.
Can I purchase stocks without any knowledge of investing?
Technically, it is possible but it does not mean you should act irresponsibly. At least learn some basics first. Find out what a stock is, how the market works, what the company does, what it cost and what can go wrong. You do not need to know all the details before making your first investment. You just have to know enough.
Conclusion: Take It Slow and Learn along the Way
It becomes much easier when you grasp the whole process.
You find a legit broker, create an account and verify it, fund it and conduct research on the company that interests you.
There is no need for you to be a financial genius to invest in Nigerian stocks. However, you have to know what you are buying, the cost and possible risks.
As a beginner, you have to invest small and learn about the markets. Keep your records and review your investments. Avoid making decisions from fears, pressures and hype.
But most importantly, remember that investing in a share means owning a piece of the business.
The question that you should be asking is:
“Do I want to own this business?”
That is where you will go further than guessing the stock price tomorrow.
And if you are ready to make your first stock investment, revisit this guide, find a legit platform and read about its current fees and requirements.