Thanks to the Integrated-Global-Financial-System, we can now buy and sell stocks absolutely anywhere, including Nigeria. With the help of online brokerages, individuals can manage their own investments right from home at any time. So if you have an internet connection and some little amount of money, here’s your chance to take advantage of the Nigerian Stock Exchange to have more than 5,000% returns on your investment. The Nigerian Stock Exchange (NSE), an organization that is responsible for Nigerian Stock Market was established in 1960 as the Lagos Stock Exchange. As of December 31, 2013, it has about 200 listed companies with a total market capitalization of about N12.88 trillion ($80.8 billion). All listings are included on the Nigerian Stock Exchange All Shares Index.
Now if you are starting out, here’s a step by step guide on how to invest in Nigerian Stock Market:
Step 1 – Decide on the type of stock to invest
Before you start, you have to decide on whether you are going to invest in Exchange Traded Funds, individual stocks or other indices. While all these types of stock investments can be bought through a stock-brokerage-account, there’s a huge difference between them. Here’s the difference:
The shares of an individual stock often represent a partial ownership of a company or cooperation. For example, if you invest by buying shares from a company like IBM or a Home Depot, you automatically become a partial owner of the company. An Exchange-Traded-Fund, on the other hand, is an investment made by a company that pools a number of assets and securities. By investing in ETF, you become a partial owner of a pool of assets.
Step 2 – Pick a brokerage
After choosing between ETF and Individual Stock in Nigeria, your next step should involve picking a brokerage online. If you chose ETF, you’ll have a number of brokerages to choose from. But if you settle for individual Nigerian stocks, your choices will be limited.
At the moment, there are over 327 brokerages that are licensed to trade on the Nigerian Stock Exchange.
Usually, trading fees and commissions are accessed using a standardized sliding scale, which remains constant across all brokers. For instance, if you’re making a transaction that amounts to less than $6, 350 (N1,000,000), you’ll be charged a commission and fees of 1.86% when buying and 2.19% when selling. For larger transactions, your total commission and fees will amount to about 1.49% when buying and 1.83% when selling.
Step 3 – Opening a Nigerian Brokerage Account
To open a Nigerian Brokerage Account, here’s a step by step process that you have to undergo:
1. Fill in the CSCS form for account opening
The CSCS (Central-Security-Clearing-System) basically records the ownership of all Nigerian-securities using electronic accounts. In fact, when you ask any broker to help you open a trading account, he (or she) will first send you a CSCS form for account opening. After filling the form, you will be given a CSCS number that should accompany the stock trade you make in Nigeria. Further, this number will make it easy for CSCS to keep records of every stock holding you make in the country.
2. Complete the account opening form for broker
After contacting a broker for information on how you should open a broker’s account, they’ll send you an account opening form. In this form, you’ll be required to fill in your ID or passport number, your banking details and your address.
3. What to photocopy
Photocopy at least two of your coloured passport-sized photos, your valid passport or ID, and a recent utility bill for verifying your residence. After that, you can send all the photocopies alongside the CSCS form to your broker using FedEx or DHL.
Step 4 – Transfer your funds to the Opened Brokerage Account
After sending all the photocopied items as specified above, your broker will open your account. And then send you all the details you need to fund your account. For an efficient funding of your account, it’s advisable to use wire transfer.
Step 5 – Submit a Trade Order
By now, we can presumably say that you’ve already conducted a thorough research and you’re well-aware of which stock you should buy.
While some few brokers may choose to request a signed-trade-mandate, most brokers will simply require you to send them an email with all your trade instructions. While doing this, please remember; a number of shares on the Nigerian Stock market are quite illiquid. To avoid paying more, be sure to set a limit price for every order you make.
Once done, your broker will execute the trade and then send you a contract note. This note will be specifying the buy, the selling price, as well as the commissions and the fees charged. Actually, the entire process may take you a maximum of 4 days before the trade shares are fully settled. That’s to say, if you sell shares, don’t expect to be paid before the 4 days elapses unless you’re willing to incur some extra charges for speeding up the stock- trade procedure.