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Trading the Nigerian stock Exchange

Trading on the Nigerian Stock Exchange

Trading on the Nigerian Stock Exchange

The Nigerian Stock Exchange is a market where companies securities are traded. Companies securities here are referred to shares they offer to the public. Companies offer these shares to the public in order to raise capital to finance their projects.

The public, in turn, can make money from these securities by buying them at a lower price when prices are down and then selling them at a higher price, that is when prices are high.

Just like the normal buying and selling system in our local markets, the Nigerian stock exchange market is an online market.

To participate you will need the services of a broker. Now a broker is a person or a company that has been certified ok by the securities and exchange commission to carry on the process of buying and selling on the Nigerian Stock Exchange market.

They are given license after they have satisfied the requirements posed by the Nigerian Security and Exchange Commission.

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Why is it Profitable

Billions of naira daily are invested into the Nigerian stock exchange market. How you make profits is you invest to get back your capital and then return on investment.

However, some Nigerian brokers don’t tell clients when to invest and when not to. Some make mistakes and then you end up losing your hard earned money.

TRADING ON THE NIGERIAN STOCK EXCHANGE FOR BEGINNERS

What is a stock?

A stock also known as shares is a unit of ownership in a corporation or financial asset. Owning shares in the company entitles holders to a proportionate amount of the profits of the company. The word shares can also refer to ownership in mutual funds, limited partnership or real estate investment trust.

Types of Shares

They are two types of Shares

Common shares and preference shares

  • Common Shares: A holder of this type of share is entitled to vote at annual shareholders meetings and also receive dividends; holders of these shares are the company officers.
  • Preferred Shares: A holder of this type of share is not entitled to vote, but has a higher claim on assets and earnings than that of the common share.

Why do company sell shares?

Companies sell shares in order to raise more money, to sell these shares to the public the companies hire a monetary institution to sell their shares to the primary market.

Do companies sell all their shares to the public?

Companies don’t sell all their shares to the public, the offer outstanding shares to the public. A company’s outstanding shares are stated in its Articles of Association, the outstanding shares of a company can also be agreed by its shareholders. The outstanding shares offered by they are always lesser than those held by the company, the do these because they what to exercise control.

How can I assess shares sold by a company in Nigeria? In Nigeria, stocks listed on the Nigeria Stock Exchange website are available for sale from Mondays to Fridays 8 am – 5 pm, except for public holidays.

At what price can I buy a stock on the Nigerian stock exchange market?

Daily prices of stocks traded on the Nigerian Stock Exchange are displayed on the central securities clearing system plc. Website. https://www.cscsnigeriaplc.com/home/dailypricelist

The share price of a stock traded on the Nigerian Stock Exchange can also be known by calculation. For instance, let’s say vault-trends market capitalization is N10,000,000 and its outstanding shares are 1,000,000. Simply divide the market capitalization by the value of its outstanding shares.

10,000,000

1,000,000   =10.

N10 per share. Each share cost N10. So if Emeka wants to get 1000 shares in informationhive company, he will be paying a total amount of 1000 x N10 which gives a total value of N10,000.

BUYING/SELLING SHARES (STOCKS) ON THE NIGERIAN STOCK EXCHANGE MARKET.

To buy stocks on the Nigerian Stock Exchange market, you must a chartered stock broker or must register with a stock broker. Your stock broker buys or sells a stock on your behalf. Please note the only buy and sell stocks when you instruct them to.

However, there are fees charged for buying and selling of stocks. Look below

For buying of stocks

Sec fees Cscs fees Vat on cscs Stamp duty Comm.
30% 6% 5% 8% 1.35%

 

For selling stocks

Nse Vat on Nse cscs Vat on cscs Stamp duty Comm.
30% 5% 36% 5% 8% 1.35%

 

HOW DO I KNOW A PROFITABLE STOCK

They are two measures investors use to know how profitable a share/stock is. The first is to know the company’s earnings per share and secondly its market capitalization.

(Dividends: is an agreed amount paid out of a company’s profit to its shareholders usually annually)

Let do illustrations for proper understanding.

To get earning per share the formulae is  Profit – Dividends

No. of outstanding shares

Illustration:

Opsson Limited reported a profit of N1,000,000 and pays dividends of N200,000 and its outstanding shares are N100,000. Using the formulae

Profit – dividends                         1,000,000 – 200,000

No. of outstanding shares                     100,000             = N8 per share

 

Another illustration:

Vault trends Limited reported a profit of N2,000,000 and pays dividends of N200,000 and has outstanding shares of N300,000.

Profit – dividends                         2,000,000 – 200,000

No. of outstanding shares                     300,000             = N6 per share

With this now, if blessing brought 20,000 shares each from of the companies illustrated above, her earnings will be;

For Opsson 20,000 shares @ N8 per share = 160,000

For vault trends 20,000 shares @ N6 per share = 120,000.

So you see even if vault trends reported a higher profit, opsson is still more profitable.

Market capitalization is simply multiplying a company’s outstanding shares by its share price.

Companies with higher market capitalization, tend to have low risk, low return while companies with lesser market capitalization tend to have high risk, high return. For instance, a company has N1,000,000,000 as market capitalization and the other has N100,000 as market capitalization. The company with 1illion market Capitalization is more secure because it has the capacity sustain itself in event of any bad effects and it can still remain in business. But for the company with a lower market capitalization can shut down operations, in the event of any bad effects. However, if the company does well, its share price will rise and the holders of their share will have an increase in the value of their shares, which can be sold off.

For instance, Mr. A bought shares from Opsson company at a share price of N4 per share. Opsson Company’s share price increased to N10 per share, which means Mr. A has made a profit of N6 per share x the no. of shares he acquired from Opsson Company.

HOW TO USE TECHNICAL AND FUNDAMENTAL ANALYSIS

Technical analysis is the use of technical indicators to predict price movement of a particular stock. Using a technical indicator to watch stocks are good but experts have advised that we use the combination of both technical indicator and Fundamental analysis. The use of fundamental analysis is knowing the market capitalization of a particular stock you can get this from the company’s annual report on previous years which is always available on the Internet.

To get technical analysis I recommend you visit www.investing.com, they display Nigerian stocks and also give the summary of a particular stock whether to buy or sell. Hourly, Daily or monthly (Disclaimer: This does not show the true state of the Nigerian Stock Exchange as it is not based on real time. Check their website you will see it there.)

Trading on the Nigerian stock Exchange Trading on the Nigerian stock Exchange

 

 

 

 

 

 

 

 

But as I had said earlier combination of both fundamental and technical analysis, gives you an edge and you will be able to make discussions better.

GETTING A STOCK BROKER TO START TRADING

Stock brokers are easy to get, they are listed on the security and exchange commission website http://sec.gov.ng/list-of-capital-market-operators-as-at-august-2016/, they are however updated from time to time.

Once you have gotten a stock broker you will be required to open an account with central security clearing system (cscs), you can do yourself online on https://www.cscsnigeriaplc.com/home/register or your new found broker can do it for you.

In addition, your stock broker will need some documents from you;

  1. Your cscs form.
  2. 2 passports.
  3. A government approved ID card.
  4. Address and
  5. Banking details.

THE MINIMUM INVESTMENT AMOUNT TO START TRADING

The minimum amount to use to trade will depend on your stock broker, some brokers will require you register with an amount of N5000 only and then you can trade on the stock market with an amount as low as N10,000.

Others require that you deposit a particular sum of money first before you start trading.

CONCLUSION

Trading on the stock market is a risk but over time it has proven to bring high returns. Conduct analysis before buying a stock from the Nigerian stock market, you stock broker can give advice on this although it is not advisable to depend on your stock broker always.

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About Tony Ekuri

My name is Tony Ekuri and I am an entrepreneur into value chain distribution believe me or not, having control over your finances is the best and sustainable way to create and grow wealth.

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