Forex Trading in Nigeria – Everything You Should Know

While forex trading in Nigeria is gaining popularity, there is still a large population that has no idea how to approach this market. As a new trader, it can be very intimidating to learn the ins and outs of trading. There are a lot of factors that determine the success of a trader in the market. For starters, the trader has to choose one company among the many forex brokers that operate in Nigeria.

In this review, we are going to look at forex trading in Nigeria. We are going to look at everything you should know before you deep your feet into this market. Let’s jump into it.

What is Forex Trading?

Forex is a word derived from Foreign and Exchange. Forex trading is the exchanging of foreign/national currencies for profit. In this day and age, countries cannot survive without trading resources with each other. Consequently, there is a huge exchange of currencies involved. This makes the foreign exchange market very active during business hours where currencies are exchanged around the world. Traders have mastered the art of making a profit from exchanging currencies back and forth.

Is Forex Trading Legal in Nigeria?

Of course, this is one of the most important questions we have to ask ourselves. No one wants to risk their money in an illegal business. Luckily, forex trading is completely legal in Nigeria and has a long history in the country. There are two bodies in charge of regulating the forex market in Nigeria include the CBN and the Nigerian SEC. While these two bodies are yet to regulate any forex broker, they supervise the financial sector and ensure the market is fair to every player.

Different Types of Forex Trading

There are different types of approaches that traders take in the market. These approaches broadly determine what kind of trader an investor becomes. The different types of approaches include position trading, swing trading, day trading, and scalping. Let’s briefly look at these different types of trading.

Position Trading

Position trading is a type of forex trading where an investor holds a position for a long period waiting for a long time, only waiting to close it when some conditions are met. Such investors rely on a combination of both technical and fundamental analysis to predict what the market will look like in the future. Such traders usually check that the support and resistance are not broken before closing a trade, ensuring that the trend is observed.

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Swing Trading

Swing trading is a little similar to position trading as investors hold a position for a while before closing it. It also entails observing trends for a slightly shorter period than when position trading. As such, it also involves using support and resistance lines to one’s advantage. There are a number of strategies used in Swing trading which include retracement, reversal, breakdown trading, and breakout.

Day Trading

The majority of forex traders in the market fall under the day traders category. Day trading simply involves the opening and closing of positions during the day. This trading style usually requires a trader to observe and utilise trends during a given day or trading session. While this is a short-term kind of trading, resistance and support lines are still utilised to observe trends and peculiar events.

Scalping

Scalping involves holding positions for a very short time, usually minutes or even seconds. This trading type requires traders who have some experience and can think fast on their feet. They can utilise slight price movements to make some profit every now and then. When done several times during the course of the day, a trader may end up making some significant returns.

How to Select A Forex Broker to Trade With

Choosing a forex broker to invest with is one of the most important things. It can determine the whole experience a trader has during their trading journey. There are four key areas that we believe each trader should consider when selecting a broker to invest with. These four areas include the regulatory status of a company, the spreads and other fees, the availability of trading instruments, and the trading platform provided by the broker. Let’s briefly discuss these four areas.

The Regulatory Status of a Broker

This is probably the most important aspect to look at in a forex broker. Regulatory bodies are in charge of setting rules that both brokers and traders should follow to maintain a fair environment. They create these rules to ensure the interests of investors are protected and they are not defrauded. Reputable brokers are those that have regulations from world-class organizations. As Nigerian regulators currently do not regulate any forex broker, it is wise for Nigerian traders to only trade with brokers that have regulations from recognized organizations in other jurisdictions. Some of the best regulators for Nigerian traders to look out for include the FSCA in South Africa, the CMA in Kenya, the FCA in the UK, the CySEC in Cyprus, and the ASIC in Australia.

The Spreads and Other Fees

When trading, you should aim to trade with a broker that charges competitively low fees. This will ensure that you maximize your earnings while minimizing your expenditure. As such, looking for the lowest spreads is a wise move. The spread is the difference between the bidding price and the asking price where most brokers make their money. Better yet, investors can also look out for forex brokers like Exness that offer their clients trading accounts featuring zero spreads. Traders should also ensure that other fees like commissions and swaps are low before choosing a broker to invest with.

The Availability of Trading Instruments

Different forex brokers will provide a different number of forex currency pairs for their traders. While almost all majors are featured in just about every forex broker, the minors and exotic choices can vary from broker to broker. Moreover, traders may be interested in diversifying their portfolios by trading in other markets such as indices, stocks, cryptocurrencies, commodities, and more. As such, a broker that features a deep collection of trading instruments will always stand out.

The Trading Platform Provided

While the trading platform a broker offers might seem like a benign issue, it is actually very important. The trading platform a trader has access to can determine how fast they are able to execute traders. As forex is a fast-moving market, choosing a forex broker with a state-of-the-art platform will ensure trades are executed in microseconds. This ensures that traders never miss out on any trading opportunities due to a slow trading platform.

How To Manage Your Risk

Investors should know that the forex market, like other markets, is very risky and volatile. Any individual that tells you that you can trade risk-free is probably trying to sell you a get-rich-quick scam. Nonetheless, there are a couple of strategies that you can use to reduce and better manage your risk. They include:

Investing What You Can Afford To Lose

This is probably one of the golden rules of investing. You should only invest money you can afford to lose. This way, you can invest without having too much fear and using your emotions in trading. This makes your trading strategy more straightforward.

Using the Stop-Loss Feature

Most world-class trading platforms will allow you to set a stop-loss level when placing an order. This ensures that you don’t lose too much money beyond what you are comfortable with. This way, you don’t bleed money out of your account when you are not keeping an eye on the charts.

Do Your Research

The best way to approach the market is with your own researched knowledge. While you can receive tips and advice from other traders, it is important to do your own research and ensure the advice you are receiving matches your trading needs. Even when using a copy-trading service, it is a safer bet to verify a strategy or a move before replicating it on your end. Keep a keen eye on news and world events to make sure you are not caught off guard.

Do Not Overleverage

Leverage can be a double-edged sword. It can help you control larger positions than you would when you are using only your own money. However, if you lose a trade with a large leverage, it can end up wiping a huge portion of your account balance.

Practice on a Demo Account

The best way to get good at something is to practise regularly. This is true in forex trading too. Constantly putting your trading strategies to the test on a demo account allows you to identify loopholes and areas where you can improve them. Ensure that you choose a forex broker that gives you access to a demo account where you can practice your strategies before deploying them on the real market.

 

There are many other techniques you can use to manage your risk when trading. While we only mentioned a few here, we believe that with more experience and research, traders eventually pick up more on their own. Moreover, all trading strategies fully depend on the risk appetite of an individual trader.

A Few Tips For Nigerian Traders

Regarding Taxes

Any profits made from forex trading are not subject to any special taxation. However, they are still profits and all gross profits in Nigeria are subject to a 10% taxation. To be on the safe side and make sure you’re operating within legal limits, you should report your Forex returns as part of your yearly income.

Regarding Base Account Currency

It is always nice to find a broker that supports your local currency as a base account currency. That way, you can always view your account balance in your local currency, in this case, the Naira. However, this does not matter that much. This is because the base account currency will be converted when trading other currencies anyways. Therefore, if a broker satisfies your needs in the services they offer and their regulatory status, then you should not worry much about the base account currency.

Reduce Emotions When Trading

While traders should have a sixth sense when placing orders, it benefits them best when they take emotions out of the equation. Being overly emotional about previous results can affect your trading strategy and reduce your objectivity. Remember that past results are not an indication of future results.

Closing Remarks

In this article, we covered some key things that you should know before trading forex in Nigeria. While we have titled this everything you should know, there is still much more to forex than what is covered here. This piece is intended to get you started and give you some information you may need in the decision-making process. You can always seek education from professional educators or go to the education section of the broker of your choice for further guidance. You are safer when you understand the risks involved and the things that move the market.

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