How to Trade Nigeria Stocks With Small Money
The wait to accumulate significant investment capital of 1 million, 5 million or even 10 million to earn faster and bigger returns is one of the reasons many young Nigerians are yet to start their wealth creation journey in the stock market.
I hear a lot of young folks say that they don’t have much cash to invest in stocks and would prefer to save up a sizeable amount in their bank before they can give Nigeria stocks a shot.
Well, if this defines your thought as younger folks below 30, then I’d really want to burst that myth; the stock market wasn’t designed for the rich, it provides equal opportunity for anyone to buy and sell stocks for profit. What you actually need to kick start your journey in the Nigeria stock exchange is the strategy behind your stock picks and not the capital itself.
The same way I receive emails from beginners who often think investment capital is a big setback, so have I also received an email from a subscriber who blew up N10 million in the stock market in 2 years. The takeaway here is that your success in the stock market is not dependent on how much you start with but on how you trade and manage the funds.
From my mistake and experiences, I always advise small starter to focus on penny stocks with good fundamentals. This may be a bit aggressive against the usual buy the stable blue-chip stocks but I feel the latter is good for dividend investing and dividend investing is an investment strategy designed for the rich.
Realistically, you can’t go to the stock market with N50,000 and expect to make it big investing in dividend stocks that will pay 9 – 10% ROI, the equivalent of N4500 – N5,000, at the end of the year. This is where trading comes in handy compared to investing.
In investing, you must be ready to stay put on your stocks for the long-term, at least 3 – 5 years while trading lets you leverage the opportunities in price fluctuations by buying low and sell high. Although this is a riskier bet the reward pays well if you do your due diligence or leverage my ready-made stocks.
So what’s the step to trading Nigeria stocks online with a small capital:
Get a Broker
The first step to accessing the Nigerian stock market from the comfort of your home or office is to open a trading account with a licensed stockbroker. As technology advances, you don’t need to visit their physical offices to inquire about their requirements, you will find everything online.
Find a list of licensed and active stockbrokers on the NGX website, click here
And if you’d like to know the broker I use to trade Nigeria stocks online, I manage my equities portfolio with Meristem Securities Limited.
The guys at Meristem are very efficient and sound, I don’t even call or send a mail to their customer support centre before I buy or sell a stock, their online trading platform offers seamless access to the market so I can initiate live trade, during the trading hours, from my smartphone, anywhere.
Disclaimer: I don’t have any affiliation with Meristem, just my unbias feedback.
This is the second step to growing your small capital into a bigger portfolio. Take your mind away from the small fund in your account and adopt the trading lifestyle of asset managers, institutional investors, fund managers or the big banks. These guys don’t jump on any stock because the price is going up, they follow a strategy that is able to generate a predictable average winning rate.
As a small starter, I’d advise you to stop going from pillar to poll looking for that secret strategy to make 1000% overnight in stocks; there is never a secret to trading stocks, everything is open but you have refused to stick to one forgetting that profitable traders also incur losses, only that they make more winning.
If you trade 50 times in a year at different times, won 35 with 20-25% ROI and exited 15 at just 5-10% loss, guess how much you’d have in your account? 42 (your return on 35 trades at 20%) plus 13.5 (your balance after cutting 10% loss on 15 trades) will still give you 55, that’s like 10% return on your 50 traders from just 70% winning rate (35 gain vs 15 loss)
I assumed a modest return of 20-25% because I don’t want to be too optimistic, the fact is that I have generated more return of up to 40% 60%, or even 70% from my stock picks. For instance, I bought Seplat stock in January 2021 and by May 2021, the price has appreciated to N680, netting over 35%+ ROI.
As a beginner who wants to grow a small capital into something sizeable, take your eyes off a stock bet that promises quick return but focus on a simple, yet profitable strategy to win more and lose less in the stock market.
Or you can buy into the NSB basket of ready-made stocks if you are not ready to do the analysis yourself.
Trade Penny Stocks More
This is a unique approach to turning small capital into millions in a shorter time but certainly not without a solid strategy as shared earlier.
I love trading penny stocks because they are cheaper, you can buy more units than you would if you had invested in a large-cap stock which makes them attractive to other retail investors.
Imagine that you have N50,000 to invest in stocks, would you rather buy Zenith bank at N23 or mop up Axa Mansard stock at 90kobo? The larger cap option will give you 2,173 units while the insurance penny stock will get you 55, 555 units, both on the same capital.
I assume they have solid fundamentals and meet my checklist, so don’t get me wrong.
If both stocks appreciate by just 50kobo, you would have earned a profit of N1086.5 on Zenith bank or a whopping N27,777.5 on Axa Mansard insurance which represents 2.17% and 55% return respectively, so the choice is yours!
I am not against large-cap stocks, I trade them too but penny stocks always take the lead whenever I have both options on my desk, after all, who doesn’t like bigger returns. This happened sometime in 2020 when I had the option of choosing UCAP or GTB at N3 and N20+ with limited funds.
Always cut your loss and take profit
If you have been in the stock market for long and had interacted with successful traders, you’d have come across the slogan “Nobody goes broke for taking a profit“. This is a simple truth that can power your portfolio to the moon.
I know it’s difficult to sell a stock that’s already up by 20-25% because you think it may generate more return in the coming days or week, which is very true. But did you know that the same stock can crash immediately it starts attracting more offers than bid as everyone looks to lock in profit at the same time? While I may be wrong here, I have had reasons to celebrate my actual cash winning in the stock market by taking profit on the rally.
Back to my Seplat trade, as of this writeup, the stock is already selling for N700 but I have no regret taking profit at N680, its upper Bollinger band.
As per cutting my loss, if the stock had closed 5 – 10% below a major key level, then I’d not only assume a bearish reversal but hit the sell button to preserve my capital.
You must get used to selling for profit or loss but make sure you do more of the former by following a strategy that’s proven to generate more winning than losing.
Re-invest your profits
Yes, it’s good to take yourself out and celebrate your winning but you know what? it may not be the perfect decision at the early stage, stick to a re-investment strategy by ploughing back the profit into other stocks. That way, you will leverage the power of compound return to grow your portfolio faster.
Using the scenario shared above, if you maintain a 70% winning rate on new 55 trades, that’s like 39 winnings at 20% return and 16 at 10% loss, which should be 61.2 (46.8 plus 14.4), up by 11.2%.
You’d see that despite the losing trade, we are still growing our overall hypothetical portfolio annually on a 70% winning rate. Like I stated earlier, you can pocket more than 20% per trade if you follow a sure strategy that spots fundamentally sound stocks at bottom prices before they appreciate.
In my NSB stock basket, I shared some of my winning stocks in 2020 and a few of 2021 winners, do the simulation yourself using a small capital of less than N100,000, you’d be so shocked to see how much you would have earned in a year.
While these are my tips for trading Nigerian stocks online with small capital, I also appreciate it if you share your experience with me.