The success stories of those who have made a fortune from investing in stocks online have prompted more people to get interested and involved. This, coupled with the ease of investing propelled by the internet whereby you can participate in the Capital Markets from the comfort of your home, has made online investing a goldmine for some.
However, this success in Nigeria, has been marred by incidents of scams of various kinds ranging from hacking, virus attacks, phishing, etc. While the internet offers opportunities such as online stock investing, it is also a den of thieves disguising in diverse forms.
The difficulty in making a distinction between genuine capital market operators on the internet, and scammers has led some to question the safety of online investing.
The prevalence of nefarious characters on the internet should not make us shelve the idea of online stock investing. We can benefit from the opportunity and also protect our investment.
Participating in the Capital Market via the internet is safe if you are guided by safety procedures. It can be risky if as an investor you fail to carry out due diligence on the capital market operator you are investing with. In this article we will discuss precautions to put in place when buying stocks online.
INVEST WITH ONLY REGULATED STOCK BROKERS
In choosing a broker to invest with, you must choose one that is regulated. Regulations are important in equity investing since they set the standard to be followed by market operators. They also help protect investors against inimical and unhealthy practices from brokers in the capital markets.
In Nigeria, the regulatory body in charge of licensing and approving the activities of brokers is the Securities and Exchange Commission (SEC). Before you register with a broker to buy stocks online, carry out a thorough background check on whether the broker is regulated by SEC.
A regulated broker will never be involved in scams since they are penalties for such behavior. By investing with a regulated broker, you become immune from every form of unfair practice that accompanies unregulated brokers and you enjoy the benefits of online investing.
To determine whether a broker is regulated, you can visit the website of the Securities and Exchange Commission (SEC). Alternatively, you can also confirm the regulatory status of a broker on the Nigerian Stock Exchange (NGX) website
The NGX publishes a monthly report on the performance of stock brokers in the Capital Market. This will serve as a guide in making a choice of brokers as you will have an idea about their performance.
AVOID EQUITY CFD BROKERS
Contract for Difference (CFD) refers to an arrangement where a broker and a trader speculate on the price trajectory of a particular financial asset. In this arrangement, you do not actually own the asset be it shares or stocks or forex. CFDs are regularly offered by forex brokers so traders can speculate on exchange rate changes of currency pairs.
Karan Singh from Safe Forex Brokers advices that “traders from Nigeria must avoid trading CFDs as there are no locally regulated CFD brokers In Nigeria by the SEC. This makes trading forex & CFDs very risky for traders. And there are many scam brokers targeting CFD traders in West Africa due to the lack of local regulations.”
“For example, in Nigeria, Online Forex Trading is not regulated but still there are over 200,000 traders who trade forex & CFDs in the country. This exposes them to high counter-party risk associated with scam brokers.”
In CFD Trading, the net difference of a CFD contract is settled in cash over the counter. If it goes in your favor, the broker pays you the difference and vice versa. Financial analysts advise you not to buy stocks from a broker who offers CFD because you do not get to own the stocks.
By not owning the stocks, you lose the voting right on key decisions that affect the price trajectory of the asset and you also miss out on dividend payments. Also, buying equity CFDs incurs a lot of fees in the form of swap fees. If you’re going to trade that position for a very long time, you’ll have to cough out a substantial sum in the form of fees.
Finally, CFDs are leveraged products that involve borrowing and if the trade does not go your way, you can lose all your capital.
Also, it is better you avoid brokers that combine stock and forex brokering when choosing a broker. In Nigeria, there is no regulation in place for online retail forex trading.
INSTALL AN ANTIVIRUS SOFTWARE
One way to ensure safety as you invest online is to have an updated antivirus program installed on your computer and mobile phone. This is important in the light of various forms of virus and malware that could be deliberately sent to your device.
Installing antivirus software keeps your computer and information protected against both deliberate and unintentional virus attacks that are common these days.
DON’T COPY AND PASTE WEBSITE ADDRESSES
To prevent against visiting a copycat website, it is safe to type in website addresses rather than copy and pasting it, or clicking on a link shared with you by someone.
Fraudsters now create fake addresses that are very similar to legitimate broker websites. These websites sometimes come with one letter misspelt.
By copying and pasting a website address rather than typing, you could end up in a cloned website where your data and investment funds can be stolen.
Do not forget to Read your broker’s privacy policy.
A privacy policy is a document that gives detailed information about how a website collects and uses your personal data. To ensure the security of your personal data like date of birth, bank card number, financial information etc, try to read and understand the terms of the broker’s privacy policy.
By doing this you will find out how safe your data is with them, how long it can be kept with them and what they use it for etc. Some websites use your data to send you targeted marketing information which you can choose to opt out from. The privacy policy for websites is usually found at the bottom of the website.
YOUR BROKER’S WEBSITE SHOULD USE ENCRYPTION
The reason you should check whether your broker’s website is encrypted is to ensure the connection between your work station and the website is secured via HTTPS.
A website that is securely encrypted will have a padlock icon in the URL bar. When you click on the padlock, you get information on the security of the connection.
By encrypting a website, information sent is protected against any third-party access. This is one way to ensure that as you buy stocks online, you do so safely without the fear of your private information being at risk.
ENSURE THE BROKER’S APP HAS TWO FACTOR AUTHENTICATION (2FA)
Two factor authentication (2FA) is an extra layer of online security that requires two different methods of identification. The first one requires a password and the other requires a text or email sent to your phone.
This process is done to ensure the person accessing a particular account is the true owner and not an intruder. To make sure you’re safe when buying stocks online, always ensure your broker’s App has two factor authentication built into it. This will make it difficult for hackers to access your account even if they get hold of your password.
BEWARE OF SOCIAL MEDIA INVESTMENT SCAMS
Social media scams are very popular in Nigeria today, you should not in any way participate in them. They usually come in different forms promising huge returns on investment within a short period.
Either it’s a pyramid scheme, a Ponzi scheme, or some scam investment in an unknown company. You should never invest in them as they are not genuine. Only SEC regulated capital market operators are true investment platforms.
ENGAGE WITH CAUTION
Although investing in the capital market is one way to build a side income while actively working, you can lose your investment to nefarious characters online if you are not careful. The following guidelines if adhered to rigidly, will guarantee safety when buying stocks online in Nigeria.
@ Nigerian Tribune
