How to Make Money from The Nigerian Stock Exchange – A Beginner’s Guide

How to Make Money from the Nigerian Stock Exchange

How to make money from Nigerian Stock Exchange as a beginner.

At At the beginning of 2022, BUA food, owned by Nigeria’s second richest man Abdulsamad Rabiu, was listed on the Nigerian Stock Exchange at the price of 44 naira. As at today, May 10, 2022 BUA Stock is selling for N74.25. That is a profit of N30.25 per share or 68.75% in less than 4 months. In fact it was barely 3 weeks after the listing on January 27 when the price first hit 66 naira. It will tell the significance of that shortly. But that actually made it the best performing stock of the month on the floor of the Nigerian stock exchange. And by the end of the first quarter along with the likes of Guiness Nigeria Plc, Seplat Energy Plc, SCOA Nigeria Plc, learn Africa Plc and others it emerged brilliantly.

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Smart Nigerian investors and traders have cashed out of BUA food stock and other performing stocks in a very difficult year. And today I want to share with you how you can equally make good money from Nigerian Stock Exchange even if you have no prior knowledge of how it works.

What is the Nigerian Stock Exchange?

Before I go ahead to tell you about the Nigerian Stock Exchange (NSE) let me explain generally what a stock exchange means. A stock exchange is an organized marketplace where stockbrokers and traders can buy and sell securities. And if you are completely new into this you may be asking ‘and what are securities?’ So I will explain. Security in finance is a tradable financial asset such as shares of stockbonds, and other financial instruments. Principally, these financial assets traded on the floor of a stock market are usually issued by quoted companies.

There is a very important thing I will like you to understand about the stock market here. It is that stock exchanges often work as “continuous auction” markets with buyers and sellers displaying their transactions expertise via what is known as open outcry at a central location known as the floor of the exchange or sometimes by using an electronic trading platform.

So what is the Nigerian Stock Exchange?

The Nigerian Stock Exchange is Nigerian own marketplace where stocks and other tradable financial instruments are available for traders to buy and sell. The Nigerian Stock Market opens only on official work days. This means that there are no trades on weekends nor on public holidays. The exchange was  founded in 1961 in Lagos, first as Lagos Stock Exchange. As of November 2019, NSE has a total of 161 listed companies, with 8 domestic companies on the premium board, 144 companies on the main board, and 4 on the Alternative Securities Market board. But that number has since increased with more companies been listed from time to time.

How Does the Nigerian Stock Exchange Work?

All the companies in this world can be classified into two.It is either is a public or private company. A private company is generally owned by a few individuals who can be founders, management, or private investors. A public company is a company in which common people or general public can own stakes besides the company promoters or founders – by buying a portion of shares offered in an initial public offering or through the stock exchange. When companies go public they offer stocks to the general public to buy and become co-owners of the company.

For example, MTN Nigeria was a privately held company owned by few individuals like Pascal Dozie, Sani Mohammed Bello, Babatunde Folawiyo and co until 2019 when they finally got listed on the Nigerian Stock Exchange. And then in late 2021 gave opportunity to the general public to own share in the company through an initial public offer.

What are Stocks or Shares?

It is very common to see people use the two terms interchangeably. And it is also easy to understand why it is so. The difference between the two is very faint and difficult to explain. But in the simplest form a stock is like your ownership right in a company. While a share is the value of what you own. This appears to be the easiest explanation I can give for a layman’s understanding. But let me go ahead and explain more with examples:

A stock is a more generic term describing one’s slice of ownership of one or more companies. On the other hand a share refers to one’s ownership value in a particular company. Once you purchase the shares of a company you can rightfully be regarded as being part owner of that company’s assets or earnings.

Another way of saying it is that what one owns or purchases from a public quoted company is referred to as a stock, but each unit of the stock is referred as a share.

So if someone says he/she “owns shares,” the natural question should be in, “shares   in which company?” Similarly, I can tell you that I want to “buy 1,000 shares of Dangote Cement”. But for stock, the usage will be something like this. I can tell you that I want to “buy 10 stocks”.  If you understand that sentence well the most probable question for me would be “in which companies?” This is because that sentence refers to buying shares in 10 different companies.

How it works

The act of buying and selling of shares from stock exchange with expectations to make profit is what we call stock trading. While the act of accumulating the stocks for a long term is what we describe as stock investing. Traders who generally buy and sell the stocks on the same day are the people we call day traders.

How do you make quick money from it the Nigerian Stock Exchange?

If you want to make quick money from the Nigerian Stock Exchange  then short term trading in the option.  You can make quick money doing short term trading from speculation quicker than you’d ever imagine. It is possible to get some stock unit with any amount of your choice and quickly make gain by selling it within the next few weeks or months.

However, it is also possible to buy some units and watch your money deplete in a matter of days or week. So, this is a lose or gain approach. But if you have a good knowledge of the intricacies of trading in the stock market, then you can avoid the risk as much as possible. And with that make some quick cash.

Some people prefers to trade on high cap stocks, while others prefers trading on penny stocks.Whichever one you chose or you decides to trade on both, the truth is that you can make money if you are wise and informed about trading in the Nigerian stock market.

What You Need To Start Investing In The Nigerian Stock Exchange

There are three major things you will need to start trading. There are as follows –

1. Get a Stock Broker

The stock brokers acts as the intermediaries between you and the stock market. They handles the intricate parts of your transactions and get commissions for their efforts.

The Duty of Your Stock Broker: Your Brokers will help you open a CSCS (Central Securities Clearing System) account which in turn would make it possible for you to buy stocks and also receive your dividends.

If you are buying from the primary market, that is the one that the company advertises directly, in filling the forms, you must state the name of your stock broking firm and your CSCS account number. So, you must have a stock broker even if you are buying from the primary market.

For the secondary market, you must inform your stock broker, who will then go to the stock exchange and buy your desired stock on your behalf on a regular basis.

You can visit the website of Nigerian Stock Exchange for the list of approved stock brokers or contact me for further guidance.

When choosing a stockbroker, important factors to consider include ease of access, affordability (because some firms require a minimum deposit for opening an account), integrity and reputation, and their status with the Securities and Exchange Commission (active or inactive).

2. Open Investor’s Account

The moment you decides to trade in the Nigerian Stock Exchange, you are becoming an investor. Therefore, you will need investor’s account. An investor’s account is an account that is unique and tied to your name as an investor. It is normally opened for you along with a CSCS account with which your stocks would be moved in. It is part of the responsibility of the stock broker to open it on your behalf. And all transactions he/she is doing on your behalf will have to enter against your name in your investor’s account.

Each time your broker wants to buy stock on your behalf, he buys it into your investor’s account. The account is for both equity and bonds.

3. Secure Trading Capital

This is clear and obvious. It requires no expertise to explain. Depending on the volume you want to trade or what I will call the amount of risks you want to take, you will need enough trading cash that is proportional to your trading options.

Like I always say when it comes to investment “let the thing driving you be knowledge and not by greed”. To this effect you need to understand that knowledge is your power in this business. You must be in the know, constantly updating your knowledge of the market and be in-tune with the latest trends. Also you must be good at spotting opportunities and possess the ability to predict trends.

You remember that popular saying among stock market investors? “Buy the rumours and sell the news”. That saying simply means no emotions.

How Much Do One Need to Start Making Money from the Nigerian Stock Exchange?

This is the question many people are asking. They want to know how much they need to invest before they can start to make money from the Nigerian Stock Exchange. Well, the answer to that question is that you can start with any amount. Most companies make their offering such that you can start with almost any amount.

I started buying shares in my 200 level as an undergraduate. I discovered a Stockbroker and aligned myself with him. As a student I bought shares with over 200,000 naira then. But guess what? I did not buy them in one day. Anytime 5,000 naira enter my hand I will rush to the man’s office and ask him which stock is available? He will answer and advise me and I will pay immediately. Today I am enjoying the dividends from those shares most notably my GTB shares (I smill each time the alert comes in April every year). And you know that feeling of knowing that I am one of those that owns GTB. Hopefully one day I can afford to become the majority shareholder there.

For example, during the MTN Nigeria IPO they said that the minimum number of shares one can buy is 20 shares. And with a share going for 169 naira it means that with 3,380 naira anyone can become a part owner of MTN Nigeria. So with 5k, 10k, 20k or even 100k anyone can begin to make money from the Nigerian Stock Exchange.

Can One Lose Money Investing in the Nigeria Stock Market?

Yes, it is possible. Whether you are trading or investing in the Nigerian Stock Market with the objective of making profit it is called ‘investment’. And every investment comes with certain degrees of risk. So there are times you may invest in buying stock and later the stock of that company will completely crash.

Personal Experience

I give you an example with myself again.  As an undergraduate I had stocks with over 7 companies. But as we speak today some of them are not worth a single penny. Some of them we can’t even trace. I remember buying the shares of Daar Communications, then Bank PHB, Transnational Corporation, Oceanic Bank and others. But I know that there are some of them I didn’t get a penny from till today.

But those were some of my learning experiences today and I didn’t regret investing in shares. So I want you to bear in mind that it is possible to lose your money in the Nigerian Stock Exchange in your attempt to make more.

You can buy the shares of a particular company, say ‘XYZ’ for say 10 naira per share. And you decided to buy 1 million shares. Which means that you spent 10 million naira. The share may have received some positive forecast and you may be expecting that after 6 months the same share will be selling for 50 naira per share. If that happens you are likely to make a profit of 45 million naira in 6 months. And yes, it does happen sometimes. You can actually make that much. But the flip side is that you can wake up one morning and discover that the share you bought 10 naira is now selling for 50k.

But that does not make it a Ponzi in any way. The question now should be what and what are responsible for the fluctuating stock prices? That is what we shall consider below.

Factors that can Affect Stock Prices of Companies

Here are some of the major factors that affect stock prices:

  1. Demand and supply at a particular point in time
  2. Inflation
  3. The performance or profitability of the company’s products or services
  4. Economic Strength of the market and competitors
  5. Investment substitutes
  6. Demography of investors
  7. Trends
  8. Market Sentiments
  9. Change of management
  10. Scandal

Conclusion on How to Make Money from the Nigerian Stock Exchange

The game is simple! Spot a good stock in the market, predict accurately it’s movement, buy it. Then sell at the right time.

It is however important for you to understand tat there is no exact science to investing in Nigerian stocks. If you want to improve your trading skills, you should continue to learn about the market and trade as much as possible. Long-term success depends on developing your analytical skill and not working with rumours.

The best way to learn more about Nigerian Stocks is to read books and/or other financial news-related materials. Also learn to listen to business news on television everyday. And most importantly always visit this website from time to time.  understanding of why they do

Let’s take for example you bought Ashaka Cement shares worth N200,000 at the price of 1.00 kobo per share, if by next month the price appreciates to 4 kobo per share, you’ve made 4 times your money after selling, which will amount to N200,000 x 4 = N800,000

On that trade, you will pay a total commission of about N,8000 and pocket your profit of N592,000 from that single trade.

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