What you need to know before opening an online brokerage account in Nigeria — Business — The Guardian Nigeria News – Nigeria and World News
Online trading in the Nigerian capital markets is gaining popularity. According to figures from the Nigeria Exchange Limited (NGX), domestic investment in the market eclipsed foreign investment in 2021.
For example, domestic transactions in the market constituted 78% of total transactions in 2021, while foreign transactions constituted only 22% during the same period. Of the total N1.899 billion in 2021, nearly 30% came from domestic retail traders.
The Nigerian Securities and Exchange Commission (SEC) is responsible for regulating the activities of brokers and traders in the Nigerian capital market.
It is important to get the necessary information about any business before embarking on such a venture. In this article, we will provide you with the necessary information you need before opening a brokerage account in Nigeria. This will serve as a guide for those who intend to open an online brokerage account in Nigeria.
What is an online brokerage account?
An online brokerage account is a portfolio of securities and cash that allows trading in stocks or stocks, bonds, ETFs, and other assets through an online platform. In Nigeria, you must be at least 18 years old to open a brokerage account. An online brokerage account can also be used to:
- As a savings account to store and withdraw funds at any time
- To gain investment education, test trading tools and strategies.
There are two types of brokerage accounts you can choose from:
- Cash account – used to store your capital.
- Margin account – used for storage loans given to you by the broker.
The availability of internet in the more remote parts of Nigeria has made online brokerages popular as one can sit at the comfort of one’s home and easily open an online brokerage account. Many Nigerians are now turning to e-commerce as an alternative source of income besides their normal job.
An online brokerage account works similar to our conventional bank account. The main difference between the two is that brokerage accounts allow you to access the capital market to trade securities and stocks.
You can fund your online brokerage account by wire transfer from your bank account. Most online brokerage accounts are easy to open and you don’t really need a deposit to open one. Brokers make money by charging commissions on trades and distributing.
Conventional brokerage accounts are taxed by the government since investment income may be taxed as a capital gain. For any gains made through trading through an online brokerage account, these will also be taxed at the appropriate slab rates.
Steps to trade with an online brokerage account
All market participants in the Nigerian capital market are regulated and licensed by the Securities and Exchange Commission SEC. Before opening an online brokerage account, be sure to verify that the broker has been approved by the SEC. This helps to ensure that the broker can be held liable and that you can be compensated if the broker fails to meet their obligations.
NGX has published on its website a list of licensed online brokers in nigeria.
However, for investors interested in forex trading, Nigeria’s Securities and Exchange Commission (SEC) warns that they do so at their own risk. Forex trading in Nigeria is not illegal but it is unregulated. This warning is based on the principle that since there is no regulatory framework for online forex trading, investors should refrain.
The SEC has also advised Nigerians to avoid foreign online brokers as they are not regulated by Nigerian authorities. He further said that Nigerians should avoid online currency trading until a regulatory framework is enacted.
That being said, experts are of the view that stock traders in Nigeria should only invest or trade with SEC-regulated brokers.
Since the SEC does not issue retail licenses currency brokersthe intention of forex traders here should only patronize online forex brokers in nigeria which are regulated by at least one Tier 1 regulatory institution such as the UK’s FCA, Australia’s ASIC, etc.
What are Level 1 Regulators in Forex Trading? They are regulators or financial institutions in developed countries, so they are considered highly reliable. They usually have strict rules regarding licensing and operation of forex brokers.
Step 1: After carefully researching the different brokers and choosing the best one for you based on your trading goals, the next step is to open an account with the broker.
The requirements for opening an online brokerage account are similar to those for opening ordinary bank accounts with commercial banks in Nigeria. They are:
- Government-issued identification
- Bank Verification Number (BVN)
- Proof of address (electricity bill, voter card or bank statement)
- Proof of registration with the Corporate Affairs Commission (for a legal entity)
The account opening process usually takes between a few minutes and at most two days with most brokers. This is the result of the Know Your Customer (KYC) verification.
Most Nigerian brokers use the Bank Verification Number (BVN) to verify the authenticity of client information provided during registration. This is done as it is assumed that all information provided when registering for the BVN or when opening your personal bank account is genuine. For example, the fund manager, Cowrywise uses the BVN as an identifier. This is done by matching the provided BVN to the corresponding BVN number in the government database.
2nd step: The second step of trading with an online broker in Nigeria is to download the broker’s app. However, there is no need to register before downloading the app. Registration can be done on the App.
Most online brokerage companies have apps tailored to different cell phones and computers. You need to download the one that is compatible with your device. Your device should also have a fast processor and enough RAM space.
For some brokers, the app serves as a trading platform. This is where the trading and price movement of securities is monitored.
Step 3: The last step is to start investing or trading.
It is important that you understand the instrument in which you are investing. There are many risks inherent in online trading and investing in Nigeria. One such risk is that of government regulation.
An online broker could be investigated or sanctioned by the government. This results in the government freezing the bank accounts of those who engage in online trading with the broker.
Another problem concerns brokers offering instruments or products that are not regulated by the government, for example cryptocurrency.
There is also the risk of scams. This requires a good understanding of the online broker or investment platform in question. There are cases of online investment platforms that work similar to Ponzi schemes. These platforms promise paltry profits on investments.
An investor should try to understand the feasibility of the broker’s offer. This is important to avoid falling into the trap of fraudulent investor platforms running away with investor funds.
A trader should also apply proper risk management strategies such as using stop orders when investing with these online platforms or brokers to avoid loss of funds.
Still on the risks, investors are advised not to invest the money they will need in the next five years. However, these tips are for those investing in long-term assets like stocks.
Trading foreign exchange instruments is considered a safe short-term investment strategy. For those who want a quick short-term return on investment, forex trading is preferable.