The Nigerian Exchange Group, known as the NGX and formerly the Nigerian Stock Exchange, is the main stock market in Nigeria. Listed companies include banks, telecommunications and consumer businesses, and the NGX All-Share Index tracks the market as a whole. The Securities and Exchange Commission (SEC) Nigeria regulates the market. This guide explains how an investor buys shares on the NGX, the accounts involved, the currency risk and what to check before committing money.
This is general information, not advice on which shares to buy. Brokerage rules, account procedures and foreign-investment rules change, so check the current position with a licensed stockbroker and, for tax, a qualified adviser.
Step 1: understand the accounts
Shares on the NGX are held electronically, and the central depository is the Central Securities Clearing System (CSCS). To buy listed shares you normally need an account with a licensed stockbroker, which in turn holds an account with the clearing system in your name. The stockbroker opens the link for you, and your holdings then appear through the broker.
You also need a bank account in Nigeria for naira payments, and an identity check (know-your-customer) that the broker completes before the account can trade. Foreign investors need to show the source of funds and may need additional documents, so ask the broker what it requires before you send any money.
Step 2: choose a licensed stockbroker
Check that the stockbroker is licensed by the SEC and is a member of the exchange. Ask how it holds client money, which fees it charges and how it reports your holdings. Compare the full cost of trading, including the commission, the exchange and clearing charges, and the stamp duty and other government charges that apply to share transactions.
Ask for the terms in writing. A broker that is not clear about fees, custody or the procedure for foreign investors is a warning sign.
Step 3: place an order
An order tells the broker what to buy, how many shares, and at what price. A market order buys at the best available price now, and a limit order sets the highest price you will pay. On a market with thin trading, a market order can fill well away from the last price, so a limit order is often safer for smaller and less active shares.
Exchanges set a daily price movement limit for each share, which caps how far its price can move in one session. When a share reaches the limit, trading in it can stop for the day. Check the rule for the share you want to trade, because a limit can stop you selling when you need to.
Step 4: settlement and the cash
After a trade, the shares and the cash change hands on a settlement cycle set by the exchange. Ask your broker for the settlement schedule, and make sure the cash is available in your account on the day it is needed. A delay in settlement can leave cash committed longer than you expect.
Step 5: currency risk
Shares on the NGX are priced in naira. If you hold or earn money in another currency, you must convert into naira to buy and back again to sell. Over recent years the naira has weakened sharply against major currencies, and that can cut the value of a foreign investor's holding even if the share price rises in naira.
Check the availability of foreign exchange as well. Investors have at times faced delays or limits when converting naira back into foreign currency. Before you invest a sum, find out how long it would take to bring the money out, and at what rate. The guide on currency risk for foreign stocks explains how to think about this.
Step 6: look at inflation and the economy
Nigeria's economy has experienced high inflation at times, and interest rates and currency policy have changed often. Company results are reported in naira, so inflation can make the profits of some businesses look large while their real value falls. Compare a company's results over several years, and adjust for inflation where you can, rather than relying on a single year's growth.
Worked example: a naira investment, measured in your own currency
Suppose you convert 1,000 of your own currency into naira at a rate of 1,500 naira per unit, which gives you 1,500,000 naira, and you buy shares with all of it. A year later the share price has risen 20 percent in naira, so the holding is worth 1,800,000 naira. Over the same year the naira has weakened 25 percent against your currency, so each naira buys a quarter less of your currency than it did.
At the original rate, 1,800,000 naira is worth 1,200 units of your currency. After the 25 percent naira fall, that becomes 900 units. You started with 1,000, so you finish with 900 despite a 20 percent gain in naira. The currency fall more than cancelled the share gain.
| Measure | Value |
|---|---|
| Start: 1,000 units converted at 1,500 naira per unit | 1,500,000 naira |
| End: holding after a 20% rise in naira | 1,800,000 naira |
| End value at the original rate | 1,200 units |
| End value after the 25% fall of the naira against your currency | 900 units |
The example is stylised, not a forecast. It shows why, for a foreign investor, the currency can decide the outcome.
Reading the exchange's notices
Notices from the exchange and the regulator cover trading suspensions, changes to price limits, corporate actions such as dividends and rights issues, and changes to listing rules. A notice can change the terms on which you hold or sell a share, so check the notices for any share you own, not only when you buy it. Your broker should pass important notices on, but it is worth checking the exchange's own publications as well.
Common mistakes
Ignoring the naira. A share can rise in naira and still lose money for a foreign investor.
Assuming you can convert back quickly. Foreign exchange can be slow or limited, so plan for the time it takes.
Using market orders in thin shares. The fill can be far from the price you expected.
Missing the daily price limit. A limit can stop you from selling on the day you need to.
Relying on one year's results. High inflation can make nominal profit look better than real profit.
Checklist before you invest
- Confirm the stockbroker is SEC-licensed and that your CSCS account is set up.
- Work out the full cost of buying and selling, including government charges.
- Plan the currency: how much you convert, at what rate, and how you would bring the money back.
- Check the share's daily price limit, its trading volume and its settlement schedule.
- Read the company's results over several years, and consider inflation.
- Confirm the amount is money you can afford to lose, and that you could leave it invested through a period of currency weakness.
Key takeaways
To buy shares on the NGX you need an account with a licensed stockbroker, linked to the CSCS clearing system, plus a naira bank account. Orders are subject to daily price limits, and settlement follows the exchange's cycle. The naira is the currency of every trade, so a foreign investor carries currency risk on top of the share's own risk, and conversion and repatriation can be slow. Check the broker, the costs, the currency plan and the company's results before you commit money.
This guide is for general information, not financial advice. See the disclaimer.