Forex trading can be defined as the trading of currencies against each other, in pairs. An example is if you have ever been to a foreign country and you might have not converted your country’s currency to the currency of the Foreign country through your own Bank or Currency exchanger at the current Exchange Rate. This exchange rate is decided by a marketplace that is global and decentralised and is called Forex market.
This very marketplace is very dynamic and it’s highly volatile during some times as the movement of currency keeps changing due to various macro-economic indicators. Therefore small investors should be very cautious and be fully aware of the risks that are involved as your invested capital may deplete in a matter of minutes.
What is Retail Forex Trading?
Retail Forex trading is simply Forex trading being available to small investors/individuals. Retail Forex trading constitutes around 5.5% of the whole Forex market activity done while the rest are large investors and big institutions.
Before now, it was only available to large financial institutions. But because of the the recent advances in internet usage, low transaction costs, high liquidity and an increased attention from market penetrators, it has really been up to individuals/small investors where they can access the global currency markets and speculate on the currency movements just by signing up with a Forex Broker.
How popular is Retail Forex in Nigeria?
According to some estimates, Retail Forex Trading in Nigeria has around 300-450 Million Naira ($10-$15m) daily trading volume. It has began gaining popularity among Investors recently as many foreign brokerage firms have opened their shops in Nigeria.
The Brokers are educating new investors about the forex market opportunities & also risks involved with the market. Its easy to start investing through these brokers as they offer various trading platforms including mobile & web and they only require starting investment as low as N1,000. All you require is an internet connection & mobile device; hence, many investors and common Nigerians are turning to forex as a way of earning extra income.
Many local investor groups like: Online Forex Traders Association of Nigeria (OFTAN) are working on educating students, newbies, budding investors for getting into Forex and also building investor confidence in Forex by trying to regulate Forex Brokerages in Nigeria in the past.
Moreover, government agencies like Central Bank of Nigeria and Securities Exchange Commission of Nigeria are working to establish a regulatory framework in the Forex market. This framework is currently in the drafting stage as per their latest announcement.
What should you take into account before investing in Forex Market?
It is of paramount importance to choose a trustworthy forex broker in Nigeria, if you are looking to invest your money into the currency market. The Nigerian Forex environment is not illegal but yet unregulated hence it only makes sense to be extra-cautious when you are putting your money into someone else’s hands.
Start by checking whether the broker is regulated by global reputed foreign regulatory agencies. If your broker has no presence outside Nigeria, we suggest staying away from them.
Once you have narrowed down your choices, it’s important that you get a feel for the trading platform. Most brokers offer a free ‘demo trading platform’ where you can just trade with virtual money without downsides. Once you like the platform and you feel confident, you may subscribe to ‘Live trading platform’ where you put your own money to trade.
Then it helps if you can check the historical spreads offered by different brokers. Spread is the commission you pay to the broker each time you trade. Prefer the Broker who offers the lowest spreads. Also, ensure that the broker has an exceptional Customer Support. Do not settle for anything less. There is no reason a broker should make you wait if you want to cash-out your account.
Last but the most important, keep learning. Build your knowledge on the macroeconomic indicators and how the market reacts to it. Invest only the amount you are ready to lose. Try to minimise the losses by setting up tight stop loss. Let go of the greed and you should do good.
Nigeria has seen a lot of investment scams recently which is mostly due to lack of understanding of Financial Markets & Investing among common Nigerians. Moreover, there is also lure of get rich quick schemes that has made many to lose their money on Fake Investment Schemes in the name of Forex, Crytocurrency & Stocks.
But when it comes to retail Forex, Investors/Traders must be beware of the investment schemes or unregulated brokerages which make claims to triple or quadruple your money in a short span of time say 6 months. This is simply rare, if not impossible for it to happen. Often, these brokers lose the money and you can go nowhere as it is unregulated in Nigeria.
Also, make sure to watch-out for Bucket shops. These are unregulated brokers that make trades on your behalf, promises a certain price. But they wait until the price changes, keeping the difference in their pockets.
Its important that you educate yourself about Forex Market and how it works before making any investment and remember to only trade/invest with regulated forex brokers operating in Nigeria.
You can avoid getting trapped into all scams by following this simple mantra:
“Do not listen to anyone that says they can bring massive amounts of money regardless of their experience. And seek only the globally reputed brokerages that are well-regulated, which are transparent.”
What are the risks?
It is necessary to fully understand the risks involved here.
Forex trading is highly volatile in nature. The constantly changing macroeconomic indicators can lead to rapid fluctuations of the currency movements which can be disastrous if you find yourself at the wrong end in the trade. Even the seasoned traders take losses due to the amount of randomness the market presents. Hence it is important to arm yourself with knowledge before you even think about investing in Forex markets.
Forex brokers offer “Leverage” which essentially means borrowing money from your broker to take a bigger position. For example, a leverage of 1:100 means, you invest in only 1 unit but control 100 units in a trade. While leverage can bring in huge profits, it can also magnify the loss you take and thereby the potential to wipe out your trading account quickly.
Forex trading is still unregulated in Nigeria but it is not illegal. It means until these regulations come, if your broker goes bankrupt or refuse to pay you, nobody can help you. If you still decide to trade, choose a reputed broker which has a global presence and are regulated by prestigious foreign financial institutions. Be cautious of brokers that promise to bring massive profits. Always check the reputation of the broker before putting your money.