The trend of stocks trade has been steadily picking up throughout the world since the advent of electronic trading in 1970.
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In the past decade, there has been increased participation of the millennials in the Stock market through online trading apps like Robinhood and E-Trade which has given boost to trading figures.
Nigeria too has seen growing interest in online trading with both millennials and older stock traders using local trading platforms.
But it has been noticed that many new traders generally tend to ignore the basics and risk factors related to trading while trying to book significant profits in turn they end up losing money. To make better profits, it is important to understand the details of the stock market and guidelines related to stock trading.
Below is our complete guide for the beginners to start stock trading in Nigeria.
What are Stocks or Shares?
A stock or share represents the ownership of the company or corporation. Owning shares of any company means that the shareholder owns a part of the company’s or corporation’s asset and earnings.
All the shares that are held by external investors of a company are called outstanding shares. Suppose if a company has 500,000 outstanding shares, then owning 50,000 shares means owning 10% of the stakes in the company.
Any company or corporation that exists in the world is either public or private. 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 promotors or founders – by buying a portion of shares offered in an initial public offering or through
Stock exchange.
For example, Aliko Dangote owns shares of Dangote Group, Elon Musk owns shares of Tesla. In simple terms, if you wish to own a part of any company, you will buy its shares.
The value of these shares keeps changing due to the performance of the company and many other factors. The frequent buying and selling of shares with an aim to book profit is called as stock trading.
How Does Stock Trading Work?
The act of buying and selling of shares from stock exchange with expectations to book profit is called stock trading while accumulating the stocks for a long term is called stock investing. Traders who generally buy and sell the stocks on the same day are known as day traders.
A Stock exchange is a secondary market where all major shares of public companies are traded.
Exchange matches the potential buyers and sellers of shares of listed companies on the exchange. This means that if you buy shares of any company, you are buying from other shareholders who want to sell through the stock exchange.
For example – Tesla, Microsoft, Alphabet, Guaranty Trust Bank Plc are traded publicly on stock markets and investors can buy & sell them on exchange.
Only Public Companies are allowed to trade publicly on a stock exchange that means outside investors or general public can invest in them through stock market. This is a way for companies to raise capital for business expansion or raise initial funding in case of IPO. Every new company has to register itself through Initial Public Offering (IPO) on an exchange.
Investors normally earn income from company’s profits as dividends or by speculation on share value as day trading or value investing in the stock exchange.
Individuals can buy and sell shares of any listed company at varying prices from the stock market.
Companies are not allowed to take part in stock trading but they can buy back their own shares or issue more stocks.
