Forex trading involves speculation on the currency values with an aim to make profit. Forex is traded in currency pairs, where one currency is pitted against the other – means when you buy one currency, you automatically sell another currency.
As an example, take NGN/USD as a currency pair. Here, NGN is the “Base Currency” while “USD” is the “Quote Currency”. Base currency represents how much of a quote currency is required to get one unit of Base currency. Suppose you expect the NGN to appreciate in near future, you would buy NGN/USD, which means you have bought Nigerian Naira and sold the US Dollar simultaneously.
If NGN appreciates in future against the USD, you will close the position by selling the NGN/USD pair which means selling the NGN and buying back the USD thereby realising your profit.
In retail trading, there are instruments called Contracts for Differences (CFDs), where one does not own the underlying asset but rather take a bet or speculate on which direction the asset price is going. While Spot Forex trading involves just currency pairs as the underlying asset, a CFD may involve different types of assets such as metals, energy, global indices, stocks, bonds, and also FX. Most retail brokerages offer Forex as a CFD product along with other asset classes.
Retail Forex volume in Nigeria is increasing
Retail Forex trading is growing in Nigeria and it is estimated that over ₦3-5 billion Naira is traded in daily volume and this figure is estimated to grow much faster in future. One report by FX trading platform research firm CPattern revealed that Nigerians deposit around $514 quarterly which amounts to around ₦185,550 Nigerian Naira. In Africa, it is only behind South Africa where traders make an average deposit of around $742.
But what is contributing to this growth of Forex in Nigeria?
Some say it could be due to lower internet connectivity charges, rise of mobile devices in recent times, growth of global payment systems in Africa as well as youth population that see Forex & Crypto as way of making money.
Many leading brokerages are opening in Nigeria which are also contributing to investor education among the youth. This has also sparked interest & surge in demand for investing in global stocks, Cryptos & Forex Market CFDs. There are many local Forex Training Groups that have formed in various Nigerian cities and have large number of members, which has led to the rise of Forex ecosystem in Nigeria.
How can Nigerians trade Forex?
With the rise of Retail Forex Trading platforms, the barrier to entry in global FX market has been lowered for the investors globally. Some global brokerages only require very low funding of $5-10 to open a trading account and to start investing in the market.
Same is the case in Nigeria where there has been increase in number of brokerages locally. Some of the global FCA, CySEC & FSCA regulated forex brokers are working in Nigeria & have also opened their local offices here. They allow investors to open an account with an investment as low as ₦1000. These brokerages also accept local bank payments as well as withdrawals with local phone support.
Trading forex in Nigeria has very low barriers to entry with generally the following steps:
You need an internet connection & a mobile device or PC/Laptop.
You can open a trading account with any Internationally regulated forex broker after comparing their reviews & regulations. Some of these brokers also have local offices in Nigeria.
Then you need to get your account verified by submitting your KYC documents.
Then you make an initial deposit of minimum amount set by the broker, which in many cases is as low as ₦1000 or whatever amount you feel you need to invest or trade with.
Once your account is verified by the brokerage and you have deposited the funds, you can start trading any CFDs of your choice be it Forex or Stocks or Cryptos.
Almost all the brokerages now offer demo accounts, and new investors & traders who are just starting out, should always start with a demo trading account. Demo account is just like a real trading account but with demo money from the broker to test out your strategy.
You can trade on any CFD in a demo account to see how the market or broker’s platform works. With demo account you can devise a sound strategy before making any real investment. Plus part of demo trading is that you don’t lose any real money.
It is advised to start trading on a demo platform which is offered for free by most brokers before putting your own real money.
The importance of trading with a reputed broker
The rise in popularity of Forex trading in Nigeria has led to the emergence of many Forex related scams like: “unregulated fake forex brokers who don’t invest your money in the markets”, “Trading Bucket shops”, ”Ponzi schemes advertising themselves as genuine Forex investments”.
All of these have common characteristics that they promise unreal & massive short term returns in context of forex and they eventually end up taking your money or keeping the profits with themselves. These fake forex investment “Ponzi” schemes have taken away wealth of many unsuspecting investors in Nigeria. These scams are prevalent as there is lack of investor education among youth & first-time investors.
While Forex trading is currently unregulated in Nigeria, but it is not illegal according to local laws. It essentially means until the local regulations in Nigeria come, if your broker goes bankrupt or refuses to pay you, nobody can help you. Hence it is of importance to choose a globally regulated broker if there are no local regulations. Atleast, the chance of them getting bankrupt and taking your money will be low.
You should always avoid the brokers that promise to bring massive profits from trading. Always check the reputation of the broker in the form of online reviews, and their regulations before putting your money. A good broker is generally regulated with global market regulators like FCA (Financial Conduct Authority of UK), ASIC (Australian Securities and Investments Commission), FCSA (Financial Sector Conduct Authority of South Africa), or CySEC Cyprus.
Is Forex right investment for you?
Forex trading, by its very nature, is risky like any other investment instrument that is traded in the market.
The rise and fall of a currency value are determined by global events and it is virtually impossible for someone to accurately speculate the movements all the time. As there are no centralised exchanges in Forex, the market movement is based on global economic events of the countries whose currencies are traded, global demand & speculation of a currency.
Hence, forex trading is highly volatile, rapid fluctuations of the currency movements can be disastrous if you find yourself at the wrong end in the trade. It is recommended to demo trade until you get a grasp of the various factors at play before putting your own money at risk.
Forex brokers offer very high leverage up to 1:1000 or even higher sometimes which can cut both ways. While profits can be massive, losses can make you bankrupt within minutes of entering the trade. Global market regulators like FCA, ASIC recommend beginner traders not to take leverage in the initial stages of your trading.
Moreover, it is not advised to invest in Forex or any other speculative instrument, if you don’t know how the market works or don’t have adequate investing knowledge.
Credit: Dailypost