4 important things stock investors should know about the Nigerian Stock Exchange
The ideal place for investors looking for high rates of return is Nigeria’s stock market. Investors can profit greatly from it, and it has a solid track record. For those who wish to invest in Nigeria, this is a fantastic chance. Nigeria’s economy and stock market will see some ups and downs, just like any other nation, but it is still worthwhile for those looking for investment opportunities.
What is Nigerian Stock Exchange (NSE)?
Since its establishment in 1960, the Nigerian Stock Exchange (NSE or the Exchange) has provided services to the continent’s second-largest financial hub. The Securities and Exchange Commission (SEC) of Nigeria registered and regulates the NSE in accordance with the Investments and Securities Act (ISA), which grants it a license. The Exchange is an affiliate member of the World Federation of Exchanges (WFE), an executive committee member of the African Securities Exchanges Association (ASEA), a founding member of the Intermarket Surveillance Group (ISG), and a member of the International Organization of Securities Commissions (IOSCO).
The NSE is always changing in order to satisfy the demands of its cherished clients and maintain the greatest degree of competitiveness. The Exchange provides a wide range of services, including market data transmission, market indices, ancillary technological services, and securities listing and trading. Central Securities Clearing Systems Plc (CSCS), an associate firm of the Nigerian Stock Exchange, provides electronic clearing, settlement, and delivery (CSD) services on behalf of the Nigerian Stock Exchange.
The Exchange runs a fair, orderly, and transparent market that unites the greatest African businesses with local and international investor communities. It has over 250 listed securities and 223 active brokers. The Nigerian Stock Exchange is ready to promote the accelerated economic development of Africa and to establish itself as “the Gateway to African Markets.”
In Sub-Saharan Africa, the NSE is the oldest continuously operating exchange. There are a few myths surrounding the Nigerian Stock Exchange, including the notions that it is exclusively accessible to foreign investors, trades only Nigerian stocks, and requires residents or citizens in order to conduct business. All of these claims are untrue.
Guidelines for trading Nigerian stocks on the NSE platform
Investing is essential if you want to increase your money and stay up with Nigerian inflation. Over time, inflation reduces the purchasing power of money. The value of your salary savings will therefore decrease every day if you do not invest in a reliable instrument.
With the Nigerian equity market returning 5% so far in 2021, well below the 50% it provided last year when Bloomberg placed the Nigerian stocks market top in the globe among the 93 markets it tracked, the Nigerian stock market has drawn a sizable number of investors, both domestic and foreign.
Over the years, technology has made investing in Nigerian equities much simpler, and the NSE welcomes interest on its platform from both Nigerians and non-Nigerians. The NSE has become a very accessible market throughout the course of its existence, both for investors and dealing members. Thanks in large part to technology, investing in the NSE has undergone a thorough process of simplification over time. Here are four simple steps to get started investing in Nigeria.
- Research and decide on a preferred stockbroker
A stockbroker is a designated agent with the power to carry out purchase or sell orders on behalf of investors. In terms of the Nigerian stock market, a broker-dealer business that is a dealing member of the NSE and is registered with the SEC is referred to as a stockbroker. Important things to think about when choosing a stockbroker are their accessibility, cost (because some companies require a minimum deposit to create an account), integrity/reputation, and status (active or inactive) with the NSE/SEC. In a later article, a list of stockbrokers will be provided together with their contact information and associated transaction fees.
- Register with your chosen stockbroker
Customers must complete out the broker’s registration form (either manually or online) and supply the KYC (know your customer) documentation listed below in order to register with a stockbroker.
- Identification documents (PVC, national identification card, driver’s license, or international passport);
- Evidence of a home address (bill or receipt no later than 3 months),
- A photograph and electronic signature from a passport (if filling the form online).
- For non-Nigerian citizens, a notarized form of identification and proof of address would be needed.
All investors must be registered on the CSCS in order to trade on the NSE (Central Securities Clearing System). A NSE affiliate company is CSCS Ltd. The system keeps track of who owns which Nigerian securities in an electronic database. When you register, the system gives you an account number that will go along with every trade you make on Nigerian stocks. Through the portal your stockbroking business provides, you can create an account on the CSCS (typically, stockbrokers update client registration on their platforms, automatically in the CSCS registry).
- Fund your account and start trading
As soon as any payment you make is validated, your stockbroker will fund your account using the bank account information they have given you. Your stockbroker handles all exchange-related transactions. One of two things can lead to this.
- You can mail your broker trade instructions, typically.
- Some brokers offer online trading environments that let you carry out trades on your own.
- Continually learn
Purchasing Nigerian equities is not a precise science. Continue learning about the market and trading as much as you can if you want to sharpen your trading abilities. Analytical abilities must be developed for long-term success.
It is best to read books and other financial news-related materials to learn about Nigerian stocks in order to comprehend market history, such as Nairametrics and Bloomberg. You’ll have a better idea of why market fluctuations occur if you know when and how they occur. You need a successful trading plan if you want to profit from trading. You should incorporate risk-reduction strategies like negative balance protection into your plan.
The pros and cons of investing in the Nigerian Stock Market
One of the best markets to invest in is the one in Nigeria. Nigeria’s stock market has a strong track record. The Nigerian Stock Exchange, established in 1953, grew by 23.5% year on average between 1995 and 2014. The fact that the Nigerian stock market is far less volatile than other markets like China, Japan, or Mexico is an additional bonus for individuals who are interested in investing there. This means that because the Nigerian Stock Market is more stable, you won’t need to worry as much about unexpected declines in value. For investors aiming for high rates of return with little risk, this may be beneficial.
Many investors consider Nigeria’s stock market to be dangerous. Although many people are interested in investing in Nigeria, the hazards are also a deterrent. Investors should be aware of the dangers and difficulties involved with trading on the Nigerian Stock Exchange. Inflation is a significant risk when investing in Nigeria. When prices increase at an unpredictable rate, it is called inflation and it can lower the value of your assets, such as stocks and bonds. As a result of having less discretionary money, customers experience rising inflation, which lowers demand for products and services. Deflation will weaken the value of your investments when demand declines and economic output slows or even reverses.
The possibility of interest rate and currency volatility when making an investment in Nigeria. The debt-to-equity ratio of a company that is listed on the Nigerian Stock Exchange is something you should pay attention to when investing in it since it will determine how much money you can expect to make. A company’s debt-to-equity ratio indicates how well it will perform during economic downturns like recessions and depressions, when consumers cut back or stop spending altogether because they have no more money to spend due to rising inflation rates or because they may choose to look for work elsewhere because they lost their job. The higher the debt-to-equity ratio, the greater the chance that investors will face more difficulties.
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