What Is Forex Trading?
Forex is a combination of two words; foreign and exchange. When people exchange foreign currencies in a decentralized market to make profit, it is called forex trading. The Forex market is one of the most liquid markets in the world. In 2019, the global currency trading turnover surged to more than $6 trillion a day. Forex trading in Nigeria is relatively new as compared to other profit-making ventures. There are no specific regulations in place for forex trading in Nigeria.
Read: Best Forex Brokers in Nigeria
How Does it Work?
Forex trading involves three main participants, including traders, brokers, and the market institutions (liquidity providers/banks). Brokers connect traders to the market institutions through a trading platform.
Traders always have to trade currencies in pairs, i-e buying/selling one currency against another. Each currency pair comprises a base and quote currency, where base currency appears before the quote currency, such as NGN/USD, GBPUSD, etc. In forex, a quote currency indicates the amount needed to be exchanged against a base currency.
The prices of foreign currencies are subject to change over time due to various geopolitical factors. Fluctuation in prices of currencies enables traders to make profits. If a currency pair appreciates over time, it brings profits with a buy trade and vice versa.
Let’s make it simple with an example;
Suppose you wish to trade USD/NGN and your broker quotes the rate for USD/NGN as 381.20, then you need 38120 NGN to buy 100 USD. i-e 100 USD @ 381.20 NGN
Now suppose the exchange rate of the pair drops to 375.00 in a day or two, then you can buy the same quantity of the U.S. Dollars for 37500 i-e 100 USD @ 375.00 NGN. That means you can save 620 NGN or make a profit of 620 NGN by selling the pair at a higher price and buying back at a cheaper price.
On the other hand, if the price of the USD/NGN pair appreciates in a few days, then you might need to buy the same quantity of the U.S. Dollars by paying even higher rates.
In both cases, the risk of profit and loss prevails. That’s why traders perform detailed technical and fundamental analysis to make informed trading decisions.
Pros And Cons of Forex Trading
Forex trading is a risk-oriented investment market. Traders should carefully consider pros and cons of forex trading before making any investments. Listed below are some main benefits and drawbacks of forex trading:
- Flexible Timings – Because the forex market remains open round the clock five days a week, it offers great flexibility for traders to trade at their convenience.
- Less Price Manipulation – Unlike stock and equity markets, the forex market is less prone to price manipulation. Even the insider information can’t create much difference in the prices, because there is no central authority controlling the forex market.
- Volatilite Market – Usually, high volatility is considered a threat in forex trading. However, it can help traders to pocket decent returns with a well-planned trading strategy.
- Higher Liquidity – The forex market is one of the most liquid markets in the world. Round the clock availability of participants enables traders to fill up their orders instantly. Higher liquidity also helps in minimizing price deviations.
- Variety of FX Pairs – With a wide range of major, minor, and exotic forex pairs, traders have the option to trade their favorite currency pairs.
- Minimal Investment – Unlike other businesses, forex trading can be started with minimum capital. Some brokers even allow traders to start with a deposit as low as 01 U.S. Dollar. Hence, starting your forex trading journey does not require any major investments.
- Practice accounts – Traders can use demo accounts to practice their trading skills before going live. Demo accounts help traders to learn trading odds without compromising their real funds. In other businesses, you have no such option available.
- Leverage: Besides offering increased market exposure to small-scale investors, leverage also increases the risk of loss. High volatility in the forex market can make leverage even more disastrous for novice traders.
- Uncertainty – The element of uncertainty prevails in the forex market. Price changes due to various social and political factors, resulting in extreme price swings. There is no way to predict the price movement accurately. The uncertainty in the forex market can sometimes result in losses beyond your expectations.
- Test of Nerves – Forex trading is all about controlling your nerves. Besides being consistent, traders also need to have a lot of patience to succeed in forex trading. Emotional traders cannot survive in the forex business for long.
How To Start Trading Forex in Nigeria
With an estimated daily trading volume of more than 400 Million Nigerian Naira (NGN), forex trading has become increasingly popular in Nigeria. To start forex trading in Nigeria, traders need to fulfill the given below requirements.
1) Computer, laptop, or mobile with a stable internet connection
2) Funded account
3) Trading Platform
4) KYC verification
The KYC is an abbreviation of “Know Your Customer”. Besides offering a live trading account and a platform to access the market, all brokers need their clients to complete the KYC process. It helps anti-money laundering agencies to stop financial irregularities.
Clients can use their national ID card or passport to verify their identity. Traders can also use their driving license instead of their ID card. It is worth mentioning here that brokers can also ask clients for additional documents, such as a bank statement or utility bill for address verification.
After completing the KYC parameters, traders can deposit funds in their trading accounts and start trading. Generally, brokers offer multiple payment methods including but not limited to credit cards, debit cards, electronic wallets, and bank transfers, etc.
Forex Trading Communities, Forums, and Discussion Groups in Nigeria
Joining online communities and forex groups can speed up your forex trading learning process. Discussion with other professional traders is an effective way to identify your mistakes and learn from their experiences.
#1 Earn Forex Nigeria
Earn Forex Nigeria is an online community of professional forex traders based in Nigeria. The platform helps traders to learn the art of forex trading through online classes. Traders can also subscribe to the funds management services offered by the forum.
#2 Lagos Forex Hangouts
With nearly 1K members, Lagos Forex Hangout is a meetup group of forex aspirants. Besides providing free forex signals, the group members help traders identify endless trading opportunities in forex.
#3 Nigerian Forex Traders
Nigerian Forex Traders is a Facebook page created to connect traders from all over the country. With multiple posts and discussion threads, the page seems to be an active community of passionate forex traders.
Forex Infuencers to Follow in Nigeria
#1 Kojo Forex
Kojo holds more than seven years of trading experience in forex trading. He provides mentoring services to forex traders, helping them to become financially independent. Mostly known for his in-depth market analysis, Kojo is a renowned forex influencer in Nigeria.
#2 Joseph Benson
Joseph Benson is a forex expert providing coaching services to newbies based in Nigeria. With over 3K subscribers on youtube, Benson is well known for his effective trading strategies. You can also follow him on his Twitter and Instagram channels.
Frequently Asked Questions (FAQs) §
Is forex trading legal in Nigeria?
Yes, forex trading is legal in Nigeria. However, traders should trade with licensed brokers in Nigeria. Also, traders in Nigeria are not allowed to offer fund management services.
What is the best time to trade forex in Nigeria?
The best time to trade forex in Nigeria starts when the two trading sessions overlap. Traders based in Nigeria can follow the given below timings for the same.
- US/London Overlap: 9:00 PM to 1:00 AM
- Sydney/Tokyo Overlap: 03:00 PM to 5:00 PM
- London/Tokyo Overlap: 04:00 PM to 5:00 PM
Is Forex Trading taxable in Nigeria?
Yes, income from forex trading is taxable in Nigeria. Traders need to disclose all relevant income, including forex earnings, to the tax authorities.
Can you make money trading Forex in Nigeria?
Yes, forex trading can bring decent profits if you follow effective trading strategies and money management rules. Also, patience with consistency holds dire importance while trading the forex market.