Forex Trading in Nigeria.
For Nigerian Investors, forex trading can be a way to earn wealth.
It involves speculating on the rise and fall of a currency's fluctuations. It has become really popular in Nigeria with an estimated daily trading volume of ₦300-450 million. You may be attracted to forex trading because it offers opportunities/potential to make good profits in less time (minutes & hours instead of months) with your investment.
But is trading in the forex market really profitable for small or retail individual investors? How much income can you earn from trading forex part time or full time? What are the risks?
There are so many other questions that may come to your mind if you are a beginner forex trader. We will try to answer all these questions and more with this guide.
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Contents.
What is Forex Trading?
Forex trading is the buying & selling of currencies with an aim to make a profit. Traders can place their trades in the forex market, which is an over-the-counter market that allows investors to trade currencies. This is a platform for investors, institutions, banks, and retail traders.
Foreign Exchange Market is the largest trading markets and has an average turnover of US$6.5 trillion on a daily basis around the world. This is larger than all the stock markets in the world combined together. Trading activities are conducted through the “Interbank Market” which allows you to execute trades 24 hours in a day, for 5 days a week from Monday through Friday.
Real Life example of Forex Trading.
Have you traveled overseas? If you have then the chances are that you have already traded currencies before. This is because you need to acquire the currency of the country you are visiting by exchange the currency of your home country.
Let’s say that you change ₦410,000 to US Dollars for travelling, and you get 1000 USD from the exchanger. In this example you are physically buying USD by exchanging your Nairas. When you change your Naira into a different currency to spend money on your trip, you are actually making a forex transaction.
The rate that you get from your exchanger is decided on the basis of the real time exchange rates plus the profit margin of the money changer. If the current market rate is NGN410 per USD, then you would probably get around ₦420 rate from your changer. The difference of ₦10 (420 – 410) for each USD is your changer’s profit margin.
In theory, this is what online forex trading on the internet is all about, but still a bit more than exchanging currencies through a Money Changer.
Understanding Currency Pairs.
All transactions in the forex market are based on the purchase of one currency for the sale of another currency. So you are trading or exchanging the 2 currencies simultaneously for one another, hence known as ‘currency pairs’.
For example: EUR/USD (Euro & the US Dollar), NGN/USD (Nigerian Nairas & the US Dollar) etc.
There are 100s of currency pairs, including the so called Majors, minors & exotic. It is really important to understand what currency pairs, and how they work before you can start trading Forex.
In this chapter, you will learn everything you need to know about Currency pairs. Let's start!
Types of Currency Pairs.
Currency pairs are mainly classified into 3 types:
1) Major Currency pairs: These are the currency pairs that include US Dollar as one of currency in the pair. Almost 85% of the global trading volume is traded in the majors.
Majors include 7 currency pairs: EUR/USD (Euro/US Dollar), GBP/USD (Pound/US Dollar), USD/JPY (US DOllar/Japanese Yen), AUD/USD (Australian Dollar/US Dollar), USD/CHF (US Dollar/Swiss Franc), NZD/USD (New Zealand Dollar/ US Dollar) and USD/CAD (US Dollar/Canadian Dollar).
Since most of the trading is done in majors, so they are highly liquid & it is easier to get in & out of trades. The opportunities to make profits are higher.
2) Minor Currency Pairs: Minors, also called the cross curreny pairs, contain all the currencies in the major pairs except for US dollar. These include EUR (Euro), GBP (Pound), JPY (Japanese Yen) etc.
Examples: EUR/GBP, EUR/JPY, GBP/JPY etc. As you may have noticed that these are the crosses of all the major currencies excluding US Dollar.
The liquidity & volume are lower than majors, so trading opportunities may be lower than with majors.
3) Exotic Currency Pairs: Exotic Currency Pairs are made from one of the currency from major pairs and other one from the emerging economies like: Brazil, South Africa, Mexico, Russia etc. Examples of such pairs include: USD/BRL (United States Dollar/Brazilian Real), USD/HKD (United States Dollar/Hong Kong Dollar), USD/ZAR (US Dollar/South African Rand), USD/RUB (US Dollar/Russian Ruble) etc.
Exotic Pairs usually don't have high liquidity & trading volume but they have high volatility plus they have high spreads as compared to Major & Minor Pairs.
As a beginner Forex Trader, you need to stick to major pairs only as it offers high liquidity and predictable market movements.
Currency Pairs Lingo.
While trading forex, you would come across these common terms. We will be explaining all the important terms here.
1) Quote by the broker: When you open a trading account with a Forex Broker, they tell you the Bid/Ask price to buy & sell the currency. It will be quoted like this example: EUR/USD 1.2812/15. This price is the quote by the broker.
2) Pip: Pip is the smallest unit in the currency quote (given by the Broker). It is the last decimal in the price. For Example: In the quote 1.2811 moves to 1.2812, the movement in the last decimal is 1 pip.
3) Bid Price: Bid price is the price at which the broker is willing to buy a currency pair from you. At this price, you can sell base currency in the pair. This price is shown on the left side in the quote ticker by the Broker.
For Example: If you see the quote as EUR/USD 1.2812/15, then 1.2812 is the quote price, and it means that you can sell 1 Euro for 1.2812 US Dollars.
4) Ask Price: Ask price is the price, at which the broker is willing to sell a currency pair to you. At this price, you can buy the base currency mentioned in the pair. It is shown on the right side of the quote ticker by the Broker.
For Example: When you see the same quote as above it had 2 values in it: EUR/USD 1.2812/15, the second value tells you about the Ask price, it means you can buy 1 EUR for 1.2815 Dollars.
5) Spread: Spread is the difference between the Bid & Ask Price quoted to you by the broker. So in above example: in which quote is EUR/USD 1.2812/15, the difference between 1.2815 minus 1.2812 i.e. 0.0003 or 3 pips, is the spread. Spread is the fees charged by forex brokers, so it is essential to choose a forex broker that has lower spread (you should also check the overall fees).
How to start Forex Trading in Nigeria?
Forex trading can now be done by anyone in Nigeria, anytime, from home or anywhere through the internet. All you need to trade forex online is a laptop, good internet connection, good trading strategy tested on demo & starting capital which we recommend to be atleast ₦50,000.
You need to signup with a Forex broker. There are many 'good' & 'scam' brokers. We will tell you exactly who to choose.
Finally, once you have a trading account we will show you the Forex Orders that you can place, and the profit/loss calculation.
1) Open Account with a Forex Broker.
In order to trade forex, you need to find a CFD broker. There are numerous forex brokers available for Nigerian traders such as Hotforex, Exness, XM Forex, FXTM, Forex.com, FxPro, Oanda etc.
We have compiled the list of best forex brokers for Nigerian traders. All of the brokers that we recommend on our website have proven track record of honest dealing with traders, low spread, and are authorized/regulated by top-tier global Regulatory bodies (FCA, FSCA, CySEC & ASIC) for the safety of your funds.
ForexTime is the best broker for Forex trading in Nigeria.
Competitive Spread on majors (and zero fees on deposits & withdrawals). For ex. typical spread of 0 pips + $4.88 commission for major like EUR/USD. This commission gets lower with higher trading volume. Free demo Trading account Easy to use (mobile-friendly) MT4 & MT5 platforms 63 Currency Pairs, 100s of CFDs on Metals, Commodities, Indices etc. Fast Withdrawals in Nigeria & Good support Multiple Account Base Currency options including USD, EUR & NGN Your funds are safe – regulated with UK's FCA (Financial Conduct Authority), CySEC (Cyprus Securities Exchange Commission) and FSCA (Financial Sector Conduct Authority in South Africa)
Start Trading at FXTM Important: Forex Trading is risky, so have a working strategy before trading with real money.
Start with Demo Accounts: Never start trading directly on a live account if you are a beginner becaue your real money will be at risk. We advise you to first create a demo account with the broker of your choice and then learn to trade by building & testing out a trading strategy, and figure out what works for you in different market conditions. Only once you are confident about your trading style & strategy, only then you should decide to trade with real money on a Live account.
Once you have found the Forex Broker of your choice, you can then open an account with that broker to start trading (or demo account to learn). This account will enable you to place your trades in the interbank market at the live currency prices.
If you are creating a Live account: All reputed brokers have some sort of KYC (ID & Address proof verification) & you cannot start trading in the market without verifying your account with any of the regulated broker. Once the verification is complete, you will need to make a deposit to fund your live account. These funds will be used to place live trades at the real market prices.
2) Place your First Trade.
After you have opened your Live account & funded it real money with your Forex broker, you can then open your first trade. The two positions that you can take in the Forex market are either the “long position” or the “short position”.
You need to study and analyse the trading charts or the market news & then decide whether you want to place a buy order or a sell order.
The long position implies that you are buying a currency pair and are betting on it to rise in value in the future. For ex. If you currenny market price of EUR/USD is 1.1000 & you believe that it would reach 1.25 in the near future then you can place a buy order, hence you would be buying Euros & selling US Dollars.
See the example below for a profitable Long/Buy Order in Forex.
Buy order in forex is similar to buying an equity stock. You buy the currency at a low price, and once it reaches a higher value, you can then sell off the currency, thus making your profit.
The short position can be taken when you believe the price of the currency will fall in the upcoming period. If the present price of EUR/USD is 1.10 & you think that it would fall to 1.0 in the near future then you can place a sell order in the marker.
Below is an illustration of how you can make profit with a Sell Order in Forex.
You can place a sell order when the currency is at a higher price and then when the value falls significantly, you can buy it back at lower price, thus realizing your profit.
3. Close the trade.
To realize your proft (or loss), you need to close the trade that you opened.
Profit or Loss? Depending on the movement of the currency pair that you were trading, you will either be profitable or make a loss once you close the trade.
Example: If you have placed a buy/long order on EUR/USD, and the price of the pair goes up by 100 pips, and you decide to close the trade. You would have made a profit of around $100 (minus spread) if you are trading 1 Mini Lot.
But if the EUR/USD goes down 100 pips, and you decide to close the trade. You will make a loss in this case.
Also Read: Our detailed guide on How to Trade Forex in Nigeria.