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How to Start Investing in the Nigerian Stock Market: A Guide for Beginners

Cowryvest Beginners guide to trade stocks

Stock market participation in Africa remains extremely low. A report published in Nigeria by Nairametrics some months ago indicated that there were about 5 (five) million Central Securities Clearing Systems (CSCS) accounts in Nigeria, of which only about 100,000 were active. That means that less than 2% of Nigerians have CSCS accounts at all, and only 0.05% of the population were active on the Nigerian Stock market. Of course the picture is similar across most African countries. 

While this is so, we have come across a lot of questions from people recently requesting to understand how to get started participating in the Stock market and investing in shares of quoted companies. This article is an attempt to provide a response to such requests and help get as many people as possible get started in their wealth creation journey.

The Stock market is where securities or stocks or shares of Publicly listed Companies are traded every working day. In Nigeria, to participate in trading such stocks/shares, the company has to be publicly listed on the Stock exchange and compliant with applicable regulations. There are majorly two ways to buy shares of publicly quoted companies:

  • Primary Stock Market: The primary market is where securities are created and sold for the first time, like during an Initial Public Offering (IPO), to raise capital for a company. Once issued, these securities are then traded on the Secondary market. An example of participation in the Primary market was when some Nigerian banks in trying to comply with the Central Bank's recapitalization objective, raised capital through Public offerings. Several other companies have done likewise, as a means of entry into the Nigerian stock market. During Public Offerings, the investing public can buy shares of such companies directly through the means provided for such offerings, without having to register first with a Stockbroker. So participating in the Primary Stock market is quite straight forward. However, after the public offer, for an investor to trade the stock they bought they would need to register with a stock broker to access the Secondary market where such transactions can be done. 
  • Secondary Stock Market: The secondary stock market is where investors buy and sell securities from other investors, rather than from the original issuer. This market is what people typically refer to as the "stock market," and it is where existing stocks, bonds, and other securities are traded after their initial public offering (IPO). Essentially, it is the market place that facilitates tradability or fungibility of stocks and other securities daily, otherwise owners of such securities would be stuck with them. Examples of organized secondary markets include exchanges like the Nigerian Stock Exchange (now the Nigerian Exchange Group), the New York Stock Exchange (NYSE), and the London Stock Exchange (LSE). So usually when people ask about how they can participate in the stock market, it is usually this Secondary market that they are referring to. 

How to Participate in the Stock Market

To participate in the (Secondary) Stock market in Nigeria, intending participants have to register with a licensed Stockbroker in Nigeria who will open a brokerage account, open a Central Securities Clearing Systems (CSCS) account, and assign a Clearing House Number (CHN) to them to have access to the Stock exchange trading floor. These days the registration process is very easy and could be done within 48 hours or less, depending on how quickly you can provide all required information and documents to set up your account. It is advisable to register with a licensed Stockbroker with online presence (digital stockbroker), to ease the registration process and subsequent trading process, without having to rely on sending mails to them in order to set up trades. There are several approved licensed stockbrokers in Nigeria, and you can check out some below (this is not a recommendation):

You can find a Licensed Nigerian broker on the NGX website here.

Be sure to ask your preferred broker about the fees (statutory and otherwise) and commissions involved both for registering and trading. But this should not discourage you, as they are usually small.

There are also some apps available for intending investors to download, register, and start trading. Some of them collaborate with the regular Stockbrokers to standardize the process at the backend. They are easy to register on and use. However, if you can access a stockbroker directly why not do so, rather than through a middleman. 

Once registration is complete, Voila!, you are all set to commence trading on the Stock exchange. Your stockbroker will provide information on how to fund your trading account and steps on how to trade on their platform, which connects you directly to the stock exchange. Do your research about companies and stocks to invest in before trading. These days, minimum required investment to trade on the stock exchange can be as low as ₦5,000. It is therefore surprising to see such low participation in the stock market in Nigeria and in Africa in spite of this low entry barrier, yet a lot of people want to be rich. Unfortunately, it is even 10 times easier to convince people to participate in Ponzi schemes and sports betting than to convince them to participate in this wealth generating and transfer mechanism called the Stock market. 

Anyway, there you have it. Hope with this article we have been able to provide guidance on how to get started on the Stock market in Nigeria, and help get as many people as possible to get started in their wealth creation journey. This process is similar in most other African countries- once you get in touch with a registered stockbroker they should be able to guide you through the necessary steps to take to get on board. 

If you have gone through this article and require further information on how to claim your unclaimed dividend, check out our article on it here.

Thank you for reading, and happy investing!

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