Stockbroking — How does it work?
Like a shawarma stand
Stockbroking which is also known as stock trading is the buying and selling of retail shares of different companies listed on the Stock Exchange.
A stock exchange is a platform where the shares of different companies are listed and traded. The stock exchange in Nigeria is called the (NSE) Nigerian Stock Exchange.
For us to understand stockbroking, we need to look at it from the perspective of the company, the investor and the stockbroker.
As a Company
When organizations offer shares for sale, what they are doing is getting retail investors to put money in their business.
It is like opening a shawarma stand with your brother. The shawarma stand cost N100,000 to start. You both shared the cost equally at N50,000 each. Ten months down the line, the shawarma business is booming, the business is now worth five times more than you put in and you’re looking to expand and open another branch.
That’s when you approach your rich uncles for an extra N100,000 from each of them, with a plan to give them 10% of ownership.
This is what happens when companies get listed on the stock exchange. They perform what is called an IPO (Initial Public Offer) where their shares are offered to the public with the hopes that the company’s value will continue to increase.
With that extra cash from your uncles, you can expand your business and increase its value in no time without taking a high-interest loan from individuals, banks or loan sharks.
As an Investor
As an investor, buying a company’s stock is just like buying a piece of land, only less physical.
When you buy a piece of land, you’re hoping that it appreciates fast and becomes worth much more than what you paid so that if you eventually sell the land, you make a lot more than what you spent to buy it.
It is trusting that the company would increase in value and make you rich in the future. By buying the shares, you have automatically become an owner in that company and whatever affects them (good or bad) affects you.
Let’s take the shawarma business as a sample again.
If your uncles buy into the idea, they have become investors and now own 10% of your company each. If your company grows x5 again, their initial investment of N100,000 becomes N100,000 x 5, which is N500,000
For example, those who invested in popular entrepreneur, Elon Musk’s electric vehicle company Tesla, made a profit of over 1,100% between January 2020 and January 2021.
Disclaimer: Only a few outlier shares will make that amount of profit in a year. But with consistent investments and the right stockbroker in your corner, you’re bound to make significant gains in the market.
As a stockbroker
Stock trading as a stockbroker is like arriving at Onitsha main market on a busy day when everybody is competing to buy everything.
It is like being in an auction where everyone is bidding to buy an item that you want. As more people bid, the price of the item rises and the more you delay, the more it increases.
The market goes both ways like a two-way street. When you want to sell shares, the more people that are willing to sell, the less the price becomes. It is a tough process.
Stockbroking involves taking hard decisions on behalf of your client and hoping that these decisions pay off according to your analyses. It is a special skill that is honed with time and persistence.
That is why we advise our clients to avoid trading the stock market on their own. You need a stockbroker who understands the market, how it works and how to reduce your risk exposure because you can lose all your money within the blink of an eye.
Stocks and Diversification
Buying stock is a great way to diversify your portfolio and increase your investment coverage.
It also helps to spread your investment risk and to avoid being overrun by bad investments.
It is a long term investment that can provide a lot of gain in a short while as far as you enlist the help of professional brokers.
We have a team of experienced stockbrokers who are skilled in the art of reading the market and making profitable trades on your behalf.
We are fully regulated and recognized by the Nigerian Stock Exchange (NSE) and the Securities and Exchange Commission (SEC); the safety of your money is our priority.
Reach out to us to begin.