5 ways to make better profits from the Nigerian stock market in 2023
The Nigerian Exchange Limited (NGX) runs a fair, orderly, and transparent market that attracts the greatest investors and African businesses worldwide. When issuers make new offers, investors can purchase securities directly from the primary market to invest in our market, or they can trade in already-listed securities on our secondary market platform.
An investor must designate a securities dealer or stockbroker who is a registered Trading License Holder of NGX to handle account opening and trading to buy securities in the primary or secondary market. To open trading accounts, investors must present their dealers with documentation that satisfies the regulatory Know-Your-Client (KYC) criteria as specified by your dealer/stockbroker.
The Nigerian equities market ended trading for the year on a high note, posting a Year-To-Date (YTD) return of 6.07%, despite numerous issues that have plagued the country’s economy, including a high rate of inflation, a lack of foreign investor participation, and the seeming interminable dollar crisis. Despite local equities fluctuating for most of 2021, performance was better than expected. Data from the Nigerian Exchange Limited (Formerly the Nigerian Stock Exchange) show that no month in 2021 saw double-digit returns on the stock market.
The NGX All Share Index (NGXASI) maintained an upward trend to close with a YTD performance of 2.09% on Thursday, January 6, 2022, continuing the stock market’s optimistic trend into the new year. Like January 2020, the market is climbing this month. It is a fantastic opportunity to invest in the Nigerian stock market, regardless of future events. Even though an election year is coming up, the modest return of 6.07% in 2020 gives you some peace of mind that you might not lose money. But more crucially, many Nigerian equities are currently inexpensive and offer appealing chances for investors looking to make long-term purchases.
What is a stock?
A stock or share represents the ownership of the company or corporation. Owning company shares means that the shareholder owns a part of the company’s or corporation’s assets and earnings. All the shares that are held by external investors of a company are called outstanding shares. Suppose a company has 500,000 outstanding shares; then owning 50,000 shares means owning 10% of the stakes in the company.
So how can we profit from the Nigerian Stock Exchange?
Buyers and sellers that want to deal for the same stock can connect on the stock exchange. The broker acts as an intermediary between the buyer or seller and the stock exchange and collects a commission for completing trades. The individual has ownership interests in any firm listed on the stock exchange and holds its stocks. Nigerians can invest in any Nigerian public firm as well as foreign company stocks. The stock market offers a variety of opportunities for investment and profit.
- Conduct pre-investment research
Start by examining the businesses whose stock is traded on the stock exchange to discover how they are faring in terms of profit, dividend policy, reinvested surplus cash, share behaviour on the stock exchange, and investor purchases and sales. Additionally, you should invest in secure stocks, i.e. stocks of manufacturing firms like Unilever, Nigerian Breweries, Nestle, etc.
- Invest any money you do not need in the immediate
It is useless to invest your kids’ school money while they are on vacation in the hopes of making quick cash when they start school again. The truth is that your investment would have lost so much value because the company might encounter unforeseen issues, such as a significant competitor entering the market with superior products and driving away customers or information about a potential takeover of the company by another company, which can cause a significant decline in the share price.
- Diversify your portfolio
Keep your diversification in mind. Do not put all of your money into one stock, no matter how well it performs, as anything can happen. Instead, divide the assets among several equities so you may fall back on them if something unforeseen happens to one of the company’s shares.
- Be wary of scrupulous stock brokers
Investors need to recognize that the stock market shouldn’t be viewed from a short-term perspective and isn’t a casino. This is due to historical evidence that indicates inexperienced stock market participants often suffer disastrous results. Investors in the stock market must first and foremost be aware of how various stocks and subsectors behave on the NSE to avoid being duped into purchasing “dead” stocks by stockbrokers who are constantly looking to increase their commission.
- Buy foreign stocks
You want to invest in a wide range of top firms as a share investor. However, since foreign companies like Apple, Tesla, Microsoft, and Google do not have their shares listed on the NSE, you would typically need to open an account with a foreign broker like Robinhood or E-Trade to do so. However, this is impossible because most brokers do not accept clients from outside the United States.
However, several apps have been released in recent years that enable Nigerian stock dealers to purchase and sell shares of overseas corporations. Examples of apps that permit trading in overseas stocks are Trove, Chaka, Bamboo, Wealth.ng, etc.
Additionally, there are certain forex brokers in Nigeria who provide CFD; Online Trading through their apps, such as Hotforex and ForexTime, and some foreign CFD brokers that allow clients from Nigeria, such as Etoro, Avatrade, XM, Exness, and IG. These brokers provide direct ownership of shares and global CFD trading on shares of foreign corporations. It is crucial to keep in mind that CFD instruments involve risks and that you do not acquire ownership of shares.
Things to consider before trading shares online
The following ideas should be kept in mind by novice traders in Nigeria for a simple and secure trading experience.
- Risks and Risk Management
Due to various factors, the stock market is unpredictable, and price changes are totally random. Before placing trades, each stock carries a unique risk component that needs to be considered. The risk component of the portfolio can be managed by owning equities in businesses across various industries. Before making an investment, the risk-to-reward ratio should also be examined. Before making an investment, you should educate yourself on risk management, which is the process of identifying, containing, and reducing potential sources of risk. Utilizing risk management tools brokers provide, such as Stock Loss, could help achieve this.
- Trading/Transaction Fees
In Nigeria, there are numerous stockbrokers, and each of them levies a separate commission and trading fee. Understanding all the trading and non-trading costs levied against the traders is crucial before beginning stock trading.
- Be informed
The traders must be knowledgeable about the stocks and should be able to compare each one based on the information supplied. Traders can also use the graphical information of prior price movements to develop a goal-oriented trading strategy. Overvalued equities should be avoided, while undervalued ones with growth potential should be chosen. Most brokers offer this information in data and market feed form.
- Investing in professional education and advice
Before making an investment, traders should attempt to educate themselves on the fundamentals and techniques of investing. Understanding market trends, price fluctuations, and significant news influencing price movement can be vital in converting losing transactions into winning trades. To prevent significant losses, traders should utilize their own analysis rather than following others blindly.
- Start with a demo account and practice first
Using a demo trading account with fake money is best to study the fundamental terms and investment methods. You can use this with no risk of financial loss to determine whether the chosen stocks and investment approach align with your trading goals and objectives.
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