TRADING
HOW TO INVEST IN THE NIGERIAN STOCK EXCHANGE
This article will help you start investing, from the minimum amount of money required to open an account to some ideas to consider in your portfolio.
Best Brokers to Buy International Stocks available in Nigeria
How To Invest in the Nigerian Stock Exchange in 6 steps
1. Pick a Broker
Brokers are the authorised intermediaries to trade financial assets on the Nigerian Stock Exchange.
2. Open a Trading Account with the Broker
The only requirement is to be of legal age and have a residence in Nigeria. The broker will provide you with access to their investment platforms, allowing you to send purchase and sale orders to the Nigerian Stock Exchange's central system.
3. Choose the Asset in which to invest
The investor has to decide whether to invest in shares, sovereign bonds or corporate bonds.
4. After making a decision, send a Buy order via the Broker
Submitting a purchase order for a financial asset. It is possible to set a limit price or a market price of the selected asset.
5. The transaction is completed once buying and selling prices match
When the bidding price of an asset equals the asking price, the trade is executed. The Brokers makes the transaction payment at the Stock Exchange in your name, and they deliver the transaction amount to the buyer/seller broker. You become the legal owner of the asset.
6. The Broker issues the transaction notification and charges their fees
There is no fixed fee, which means that when choosing a broker to invest in the Nigerian Stock Exchange, it is crucial to choose one that better adapts to the investor's situation.
How does the Nigerian Stock Exchange work?
What is the Stock Exchange?
Based in Lagos, the Nigerian Stock Exchange was founded in 1960 and is the country's leading Stock Exchange.
In short, the stock exchange is the institution that facilitates the negotiation of financial instruments in Nigeria. Supply of financial instruments such as stocks, bonds, currencies, and the demand for these instruments (i.e. investors) interact here.
The Stock Exchange holds daily "Trading Sessions", for which it provides the physical, technological, human and operational means that allow efficient communication between Brokers, Issuers and Investors.
What is a Securities Issuer?
Issuers of securities are companies that seek to grow through raising capital at the Nigerian Stock Exchange. These companies raise money by issuing debt (bonds) or capital (shares). Issuers of securities may be government-controlled entities or private companies, but no matter who owns the company, it is the issuer who backs the investment.
For example, if you invested in bonds from a private company, the company will be required to pay the principal and interests to the bond investors.
How is a Trade completed in the Stock Exchange?
A trade, or, in other words, the investment flow of any financial instrument, could be summarised as follows:
1. Sellers (supply) offer to sell a financial instrument at a price, for example, a bond issued by a company. Sellers aim to make this price as high as possible (Price 1).
2. Investors (demand) who wish to buy the bond, make an offer for a price. They want this price to be as low as possible (Price 2). Then, Price 1 is higher than Price 2.
3. Buyers interact with sellers until they are at the point where Price 1 equals Price 2. When this occurs, the financial transaction is completed, and the bond is exchanged between the seller and the buyer. For this interaction to occur, a Broker is needed: A company that has the role of mediation between sellers and buyers, ordering prices and quantities of financial instruments. Below we explain the services that these companies provide.
What is a Broker?
Transactions of financial assets can only be completed through a company that works as an intermediary between investors and sellers. These intermediaries are known as Brokers.
Through complex technological tools, brokers manage transactions between investors, ordering the purchase and sale orders of financial assets by price and by order of arrival. By performing this service, they obtain a commission when, for example, executing buying a share.
Brokers are, then, market intermediaries, companies in which buyers and sellers interact and come together to buy stocks or bonds at the negotiated price.
To invest in the Nigerian Stock Exchange, an investor needs to open an account with a local Broker.
International Brokers operate easy-to-use apps that allow you to buy and trade financial assets (like US Stocks, Commodities, Indices) on any device.
Investing in International Financial Assets [From Nigeria]
As we have mentioned many times in this guide, trading of financial assets must be executed through a Broker. In the case that you decide to open an account with a broker who trades in the Nigerian Stock Exchange, you will be allowed to deal with locally listed assets only.
If you, in turn, decide to open an account with an international Broker, you may invest in countless global assets. In other words, you can invest in international financial assets such as stocks listed on the New York Stock Exchange from Nigeria through an international Broker.
The job of an international Broker is to connect their clients with international Stock Exchanges. In other words, if a client intends to buy Apple shares (which are listed in New York), the broker buys it for the client and deposits it in the client's trading account. In general, almost all significant Brokers provide access to Exchanges from the United States, Canada, the UK, Japan, Switzerland and Europe.
Opening an account with an international broker is usually an online process, and you can operate in the global financial market from your phone in just a few days.