Investing in foreign stocks can be an excellent way to diversify your portfolio and potentially earn higher returns.
In Nigeria, buying foreign stocks is becoming increasingly popular as investors seek to take advantage of opportunities in international markets.
However, the process of buying foreign stocks can be complex and intimidating, especially for novice investors.
This guide aims to provide an introduction to how to buy foreign stocks in Nigeria, including the steps involved, the risks and benefits of investing in foreign stocks, and the different options available to Nigerian investors.
Whether you are a seasoned investor or just starting, this guide will help you navigate the process of investing in foreign stocks and make informed decisions about your portfolio.
What does it Mean To Buy Foreign Stocks In Nigeria?
Buying foreign stocks in Nigeria means purchasing stocks or shares of companies that are listed and traded on international stock exchanges, such as the New York Stock Exchange (NYSE), the London Stock Exchange (LSE), or the Tokyo Stock Exchange (TSE).
These companies are headquartered outside Nigeria and may operate in various sectors such as technology, healthcare, finance, energy, and consumer goods.
By investing in foreign stocks, Nigerian investors can potentially gain exposure to a broader range of investment opportunities, diversify their portfolio, and potentially earn higher returns than investing solely in the Nigerian stock market.
However, investing in foreign stocks also carries risks such as currency fluctuations, geopolitical risks, and regulatory differences between countries.
Therefore, investors need to conduct thorough research and seek professional advice before investing in foreign stocks.
Why Should I Buy Foreign Stocks In Nigeria?
In recent years, investing in foreign stocks has become increasingly popular among Nigerian investors, as they seek to diversify their portfolios and potentially earn higher returns.
While the Nigerian stock market offers many investment opportunities, investing in foreign stocks can provide a wider range of options and greater exposure to global markets.
In this article, we explore some of the reasons why you should consider buying foreign stocks in Nigeria.
One of the main benefits of investing in foreign stocks is diversification. By investing in companies from different countries and industries, you can spread your risk and reduce your exposure to any single stock or sector.
This can help to protect your investments against market fluctuations, political instability, or economic downturns in any one particular country or region.
2. Potential for Higher Returns.
Investing in foreign stocks can also potentially provide higher returns than investing solely in the Nigerian stock market.
Many foreign companies have a strong track record of growth and profitability, and by investing in these companies, you can potentially benefit from their success.
Furthermore, foreign stocks may be undervalued compared to their Nigerian counterparts, providing an opportunity for investors to buy them at a lower price and potentially realize capital gains.
3. Access to Global Markets.
Investing in foreign stocks also provides Nigerian investors with access to global markets and exposure to companies that are not listed on the Nigerian stock exchange.
By investing in these companies, you can potentially gain exposure to fast-growing industries and emerging markets that are not available in Nigeria.
For example, you may choose to invest in technology companies listed on the NASDAQ or Chinese companies listed on the Hong Kong Stock Exchange.
4. Currency Diversification.
Investing in foreign stocks can also provide currency diversification. By investing in companies based in different countries, you can potentially benefit from currency fluctuations and hedge against the depreciation of the Nigerian naira.
This can help to protect your investments against local inflation and economic instability. However, investing in foreign stocks does carry risks. Currency fluctuations, geopolitical risks, regulatory differences, and the potential for fraud are just some of the risks that investors need to be aware of.
It is important to conduct thorough research and seek professional advice before investing in foreign stocks to ensure that you are making informed decisions and managing your risks effectively.
5. You get to be part of the company you love.
One thing about buying shares is that you get to own a part of the company you invested in. Purchasing stocks enables provides you with a proxy vote, allowing them to vote remotely and normally electronically or via email on various issues that will be decided at shareholder meetings in future.
6. You can build wealth by investing in Stocks.
For most people who seek out means to build passive income, investing in the stock market is one viable means to build wealth.
Investing in the stock market is not a quick way to make a lot of money, and a lot of these investments take time to mature, it should rather be seen as a long-term way to accumulate funds for retirement.
7. Investing in the Stock Market enables you to diversify.
Diversification is essential when you intend to own stocks. There will always be risks involved despite where an investor decides to invest their money, but through diversifying asset classes in which investment is made, investors can obtain better returns. Should one invested sector underperform, other investments should balance out the investor’s portfolio?
8. You do not need to be a financial guru to invest in stocks.
Owning stocks at a company does not require you to be a guru, all investors simply have to research the companies they are interested in to see what potential they have. With these metrics, a potential investor can take calculated risks while investing.
9. It is superior to other investments.
Investing in stocks is not an entire haven but its more preferable when it comes to wealth creation.
Stocks have a history of having earned investors a lot more wealth than other investment options as they return the highest potential returns when considering a long-term investment. As long as such companies exist, and you invest in them, you get to make money off them anytime.
How Do You Buy Your First Stock In Nigeria?
Investing in foreign stocks can be an excellent way for Nigerian investors to diversify their portfolios and potentially earn higher returns.
However, the process of buying foreign stocks can be complex, and it is important to understand the steps involved to ensure that you make informed investment decisions.
In this article, we will outline the steps involved in buying foreign stocks in Nigeria.
1. Understand what the Stock Market Is.
The first thing you need to do before investing in the stock market is to understand what the stock market is and how it works.
Stocks represent ownership equity in the firm and give shareholders voting rights as well as a residual claim on corporate earnings in the form of capital gains and dividends.
A stock is a financial instrument that represents ownership in a company or corporation and represents a proportionate claim on its assets. In other words, Stocks are also called shares or equity.
Owning stock means that a shareholder owns parts of the company equal to the number of shares held as a proportion of the company’s total outstanding shares.
For instance, an individual or entity that owns 100,000 shares of a company with one million outstanding shares would have a 10% ownership stake in it. Most companies have outstanding shares that run into the millions or billions.
I wrote a comprehensive guide on how to understand shares as a beginner. Check out the link to the article to learn more.
2. Get Your Personal Document For Verification (KYC).
Understanding the verification process involved in the finance industry is necessary when trying to buy foreign stocks online.
The process that has been put in place to solve this is called the (KYC). The Know Your Client (KYC) or Know Your Customer (KYC) is a process to verify the identity and other credentials of a financial services user.
KYC is a regulatory process of ascertaining the identity and other information of a financial services user.
The Know Your Client (KYC) process helps against money laundering and prevents the financing of terrorist activities.
It is a mandatory process required by many financial-based applications to ensure that the customers are actually who they are claiming to be.
To be mandated by the law, the Know Your Client (KYC) process also helps financial institutions in several ways such as;
1. Limits fraud that results mainly due to the hiding of identity.
2. Prevents money laundering and other anti-social activities.
3. Brings stability and investment to the country, as it makes the financial framework more trustworthy and less risky.
4. Decreased uncertainty allows institutions to lend more to customers and increase their profits
The KYC process is carried out for both individuals and organizations. KYC authentication is based on the verification of identity and place of residence.
The documents required for the KYC process for individuals include the usual documents that individuals generally use, such as:
1. Driver’s license.
3. Any Documents issued by the state or the federal government.
4. Utility bills, such as telephone, electricity, gas, etc.
5. Bank statements, and many more.
3. Choose a Brokerage Firm.
The first step in buying foreign stocks is to choose a reputable brokerage firm that offers access to international stock exchanges.
Some of the popular brokerage firms in Nigeria that offer access to foreign markets include Meristem Securities, Stanbic IBTC Stockbrokers, and Afrinvest Securities.
4. Open a Brokerage Account.
Once you have chosen a brokerage firm, you will need to open a brokerage account. This involves providing personal information, such as your name, address, and contact details, as well as your bank account information.
You may also be required to provide identification documents, such as a passport or driver’s license, and proof of address, such as a utility bill.
5. Fund Your Account.
After opening a brokerage account, you will need to fund it before you can start buying foreign stocks.
You can do this by transferring funds from your Nigerian bank account to your brokerage account.
Some brokerage firms may also accept payment through online payment platforms such as Paystack, Flutterwave, or Interswitch.
4. Choose Stocks to Invest In.
Once your account is funded, you can start choosing the foreign stocks that you want to invest in.
This involves researching the companies and industries that interest you and identifying stocks that align with your investment objectives and risk tolerance.
Some brokerage firms may offer research tools and reports that can help you make informed investment decisions.
5. Place Your Order.
After choosing the stocks you want to invest in, you can place your order with your brokerage firm. This involves specifying the number of shares you want to buy and the price at which you want to buy them.
Your broker will then execute the order on your behalf, and you will receive a confirmation of the transaction.
6. Monitor Your Investments.
After buying foreign stocks, it is important to monitor your investments regularly to ensure that they are performing as expected.
You should also stay up to date with news and developments that may impact your investments, such as changes in the global economy, geopolitical events, and regulatory changes.
Investing in foreign stocks can provide Nigerian investors with diversification, the potential for higher returns, access to global markets, and currency diversification.
However, investing in foreign stocks does carry risks, and it is important to conduct thorough research and seek professional advice before making any investment decisions.
By investing wisely and managing your risks effectively, you can potentially benefit from the advantages of investing in foreign stocks and building a diversified and profitable portfolio.
Finally, buying foreign stocks in Nigeria involves choosing a brokerage firm, opening a brokerage account, funding your account, choosing stocks to invest in, placing your order, and monitoring your investments.
By following these steps and conducting thorough research, you can potentially benefit from the advantages of investing in foreign stocks and building a diversified and profitable portfolio.