One buys, Another sells

Introduction

When a company issues stock to the public, the number of shares of the stock the public purchases represents the share of ownership the public has. More specifically, a company's capital is divided into shares; each share forms a unit of ownership of a company and is offered for sale, mainly to raise capital for the company. As such, when stocks are issued, individuals purchase these shares of the stock, and in return for their capital, they become owners. However, because shares represent ownership and not debt, a company is not obliged to reimburse the shareholders if something happens to the business. Getting a share of the company's ownership is not always the endpoint for people who purchase these shares. In the course of the investment, many individuals get benefits like dividends - a cash reward given out to shareholders as part of the profit made by the company at the end of each financial year and discounts and other attractive incentives. For some others, it is the ability to secure future cash as shares are liquid and can be bought and sold quickly over an exchange platform. For whatever reason, a share investment is made, it certainly brings benefits worth taking.

How Shares Are Made Public and Issued

Shares of a company are made public through a process called an initial public offering (IPO). When a company is first created, the ownership of the company is restricted to a few groups of individuals or investors. However, as the company grows and expands, it requires more capital to aid its growth. In this event, the company then considers going public, as going public would provide it access to a larger pool of capital by selling shares to the public.Basically, an IPO is when a privately held company opens up its shares to the public, giving people and institutional investors the chance to buy them and become part of the business. The process of offering stock to the public is called the Book building process, and it is a mechanism used for setting stock prices. Investors submit bids at different prices during the initial public offering (IPO). These bids are higher or lower than the "floor price", the lowest price at which investors can bid. The offer price will be determined after the bid closes, and once the price of the stock has been determined, the company can decide on how to distribute its shares to its investors. 

Generally, the company's board of directors is allotted a predetermined number of shares, referred to as authorized shares. The issued shares are those sold to the shareholders and considered for ownership purposes. As shareholders' ownership is contingent upon the authorized share number, they may vote to reduce or increase it as they deem appropriate. If shareholders wish to increase the authorized share count, they must convene to discuss the matter and come to an agreement. If they agree to raise or decrease the authorized share amount, they must submit a formal request to the state by filing an article of amendment and then go public. 

Types of Shares

Shares are commonly categorized as common/ordinary shares and preference shares. Many companies issue common stock, and these shares offer purchasers a claim to their profits, potentially providing them with investment growth in the form of either capital gains or dividends. Common shareholders are entitled to participate in the company's earnings, vote at the company's general meeting and other official meetings, and participate in the distribution of assets if the company goes out of business. Common stock also offers preemptive rights, meaning shareholders can buy new shares and keep their percentage when the company issues new ones. Unlike common shares, preferred shares typically do not get a lot of market appreciation or have voting rights in the company. However, they usually have certain payment rules, like a regular dividend, so they are less risky than regular stock. For instance, if the company goes into bankruptcy and has to pay off its creditors, preferred stock takes precedence over common stock, so preferred shareholders get paid first. 

How To Trade in The Stock Market

The most common form of exchange in the stock market is trading through exchanges where the buyers and sellers come together to determine the trading price. Through a stockbroker, one can buy shares from an existing investor who wants to sell them and vice-versa. Some exchanges are physical locations called trading floors, while the others are virtual ones, carried out through a network of computer terminals where trading can occur electronically. The goal of a stock exchange is to make it easier for buyers and sellers to exchange securities, reducing the risks involved in investing. 

The primary market, otherwise known as the initial public offering (IPO) market, is where companies issue new securities like stocks and bonds to raise capital for a variety of purposes. The primary market is the first place for newly issued securities to be sold, and it plays a critical role in a company's IPO process. The secondary market is the place where previously issued securities, including stocks, are bought and sold by investors. While the primary market deals with companies issuing new securities, the secondary market trades existing securities. The stock market, also known as the stock exchange, is where investors buy and sell previously issued securities.

Stock Exchange

A stock exchange/securities exchange is a place where stockbrokers or traders can trade securities, including shares of stocks, bonds, and other financial products. It offers facilities for issuing and redeeming securities and instruments and capital events, such as income and dividend payments. Securities traded on the stock exchange include stocks issued by listed companies, unit trusts, or pooled investment products. For a security to be traded on an exchange, it needs to be listed on that exchange. Traders typically have a central location for keeping records. However, trading is becoming less centralized as modern markets rely on electronic communication networks. These networks offer advantages such as faster processing times and lower transaction costs. In recent years, several other trading venues, including electronic communication networks and alternative trading systems, have taken over most of the trading activity from traditional stock exchanges. 

Nigerian Stock Exchange

Nigerian Exchange Group (NGX), officially known as the Nigerian Stock Exchange, is Africa's top integrated market infrastructure, serving the continent's biggest economy. It helps companies access capital to help them grow by providing access to the financial markets. It offers its pool of domestic and international investors access to a wide range of regulated securities to reach their investment goals. NGX has three types of listings: Premium Board, which is made up of top-tier companies that meet strict corporate governance, size, and liquidity standards. Secondly, the Main Board is for companies admitted to the exchange based on how profitable they are or how much they are worth. And finally, theAlternative Securities Market (ASeM) is for smaller, fast-growing, emerging businesses.

NGX publishes the All-Share Index(ASI), which is a value-weighted index with a base of 100. The ASI is a tool investors use to describe the market and compare the return on specific investments. Basically, it tracks the overall market movement of all the listed stocks on the Exchange regardless of how much they are worth. Overall, the Nigerian Stock Exchange provides exchange services. The Company offers listing and trading services, as well as electronic clearing, settlement and delivery, and market data dissemination services. 

Investment Institutions 

An individual investor or stakeholder doesn't need to be directly associated with a company to engage in stock exchange trading. A variety of brokers and brokerage houses are registered with the Securities and Exchange Commission, which are authorized to execute trades on behalf of other parties per applicable laws, regulations, and rules, such as investment financial institutions. An investment bank is a financial services company that acts as an intermediary in large and complex financial transactions. They are usually involved in events where a company is getting ready to go public or when a company is merging with another company, and function by buying all shares of a company at a price they think is reasonable and selling them to the public or sell shares on behalf of the issuer get a commission on each one. The Investment Banking sector in Nigeria has seen significant progress in recent years due to the implementation of enhanced regulations and market surveillance measures to bring the industry in line with international standards. Major investment banks in Nigeria, amongst others, include Afrinvest Bank, Coronation Bank, and Chapel Hill Denham Bank.

Digital Investment Platforms

Nigeria has several investment platforms that provide individuals with stocks at incredible prices. Popular platforms, amongst others, include the following.

Trove: Trove is another great platform to check out if you are looking to invest in stocks or shares in Nigeria. It's a digital investment app that lets you invest in both local and foreign stocks and shares. You need to have at least N1000 to get started, and you can buy stocks, bonds, exchange-traded funds, and other securities on the market. You can invest in either naira or US dollars and choose from over 4000 stocks.

Chaka: Chaka is a fully licensed stock exchange app by Nigeria's Securities and Exchange Commission (SEC). The app allows you to trade local and international stocks and is available to individuals and businesses for investment and wealth management.

I-invest: I-invest is an investment app in Nigeria where you can securely buy and manage treasury bills, Eurobonds, shares, fixed deposits, commercial papers, and even insurance. I-Invest helps you conveniently build and manage an investment portfolio with no paperwork, bank queues, or broker required. It provides access to various investment products that enable investors to match products to their investment needs.

Piggyvest: The Piggyvest platform is a leading online savings and investment platform in Nigeria, boasting a customer base of over 4 million. Through the Piggyvest app, users can save money through a variety of features and options. The Investify feature, for instance, provides users with access to investment opportunities, allowing them to begin investing with a minimum of N5000.

Bamboo: Bamboo is an investment platform that gives you access to investment options in stocks. With Bamboo, you can also buy and sell stocks both in Nigeria and the US market.

Key Notes

To protect against fraud, an investor must trade only through registered brokers/brokerage houses and agents. If the investor has to use digital platforms, it is important to use platforms that are duly registered and recognized by the SEC; the above are listed as recognized investment platforms in Nigeria. Secondly, to authenticate investment institutions/brokers/agents registration, the SEC has uploaded a list of registered brokers and agents of the Stock Exchanges on its website for verification processes. In addition to this, the list of registered investment institutions/brokers/ agents can also be found on the website of the Nigeria Stock Exchange Platform.

It is important to note that to purchase shares listed on the Nigerian Exchange platform, you will need a stockbroker. As such, you will need to evaluate the various brokers available to you and research their costs, such as fee schedules, customer service, and their different offerings. You would also need to open a Central Securities Clearing System (CSCS) account; your preferred investment institution/ stock trading company or broker can set this. The CSCS account is that into which your equities would be transferred. After creation, you will subsequently receive a CSCS account number. This number will be used to track every stock or share purchased. To complete the application form, you will need additional documentation such as a valid identification document (government-issued ID) that shows your identification number, an international passport, driver's license, or national identity card, two coloured passport photos, and a copy of your most recent utility bill (this is necessary to verify your physical address). Once these processes are completed, the trading exercise can now start. 

Picking the right shares and company to invest in requires careful research, analysis, and consideration of investment goals and risk tolerance. While the purchase of shares would grant individuals benefits depending on their financial preferences, it is important to focus on adopting investment strategies that would enhance a well-balanced investment portfolio before purchase.