Is Forex Trading profitable in Nigeria?

So let’s talk about Forex trading. Is Forex Trading profitable in Nigeria? This is a big issue, with the recent downward spiral of the Naira against the US dollar. If you have this question on your mind, and similar questions on Forex trading in Nigeria, let’s provide the answers you need right here in this article.

What is forex trading?

Forex trading is the buying and selling of currency. You can trade any currency on the forex market. The merchant is the trader, and he buys a currency and resells it at a higher markup to make a profit.

In the forex market, $5.3 trillion is traded daily, making it the largest and most liquid market in the world. The forex market beats the capital markets of any country in terms of volume.

For instance, the New York Stock Exchange has a daily average trading volume of $22.4 Billion, the Tokyo Stock Exchange averages $18.4 Billion, and the London Stock Exchange stands at $7.2 Billion.

So you can see that there’s a lot of money in forex. You just have to learn how it works and start cashing out big.

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Is forex trading in Nigeria legal?

Forex trading is legit and legal as long as you stick to the rules. There are 2 methods of trading forex in Nigeria including

Street trading
Online trading

Street trading is mainly carried out by traders on the major streets of Nigerian cities. They exchange hard currency with Naira and vice versa. This market is also called the black market. It is mainly engaged by traders of Northern Nigeria origin, especially the Hausas.

On the other hand, online forex trading can be done by anyone using a smartphone or laptop PC and an internet connection. This method is more flexible and convenient.

Forex trading is just like buying and selling – you buy from your customer and sell to your customer. As long as you operate without the intention of scamming your customer, everything will be fine.

Forex has assumed a bad rep in Nigeria recently due to insincerity on the part of some brokers, like MBA Forex which defaulted in terms of paying investors. The matter was taken up by EFCC and today MBA Forex is shut down indefinitely and their accounts were frozen.

The matter is in court pending the determination of the lawsuit against the management. Forex is a legit business in Nigeria and so many forex traders are cashing out big every day.

However, some countries do not approve of forex trading because of certain sharp practices carried out by forex traders. Be sure that the laws of your country approve forex trading before you venture into it.

How much can I start forex trading in Nigeria with?

You can start forex trading with at least N5,000. With this amount, your risk factor is lower in case of loss of your money. However, if you are just learning, you can learn the ropes by trading for free on a platform such as Plus500 which has one of the best demo accounts for trading.

You should understand that Forex just like every other business has its inherent risks; you can lose or gain money depending on the movement of the market. Don’t ever forget that.

Is Forex trading regulated in Nigeria?

Forex trading is not regulated by the government through the CBN because it is an open market determined by the forces of supply and demand. What this means is that if there is greater demand for a currency such as the US dollar, the cost of buying the said dollar increases and vice versa.

Top 10 forex trading platforms in Nigeria

Best forex apps in Nigeria

You can download these apps from the Google Play Store or Apple app store to try them out.

FXTM
HotForex
OctaFX
XM
FBS
Alpari App
eToro
IC Markets cTrader
AvaTrade
InstaForex

What do I need to start Forex trading in Nigeria?

In order to start trading on Forex as a business in Nigeria, you need to, first of all, understand how forex works, train yourself and then sign up on one of the platforms above. Here’s a list of what you need

A laptop or smartphone
Some capital to start
A stable internet connection
A lot of patience

The reason why you need lots of patience is because Forex is a game of winning and losing. You can’t win always and you can’t lose always. So you need to understand that.

You can easily give up if you are not winning, but that’s where resilience comes in. the market could just turn around and you make good money in an instant.

How to start Forex trading in Nigeria?

To begin forex trading in Nigeria, you need to sign up with one of the platforms available such as the ones listed above.

Once you sign up, you will need to learn how to trade if you’re a beginner using their demo account. The demo account has virtual currency with which you can trade.

Virtual currency is not real currency. This helps to protect you from any losses you may incur with real currency.

You can trade on a laptop or smartphone, depending on what’s available to you. Almost all the forex trading platforms have well-designed mobile apps with which you can trade.

When you are ready to trade with real currency, you are expected to deposit an amount of money, as little as N2,000 or N,5000 to begin trading with.

As soon as you make a decent profit, you can continue to trade with it or simply withdraw it either to a domiciliary account or to a regular Naira account.

The truth about forex is a function of volume. The more money you invest, the bigger your returns will be, and vice versa. There are options such as leverage which allows a trader to borrow money from the system and add it to their account balance for trading.

Best Forex trading time in Nigeria

While the Forex market is open 24 hours a day, five days a week, trading is not always active during this entire time. Profits are made in forex trading when traders are bidding on the prices and the market is active. So it is essential that you know the crucial hours and days of forex trading when traders are the most active.

Is Forex Trading profitable in Nigeria? — *Best Forex trading time in Nigeria*

As a global market, forex spans multiple time zones. As a result, there are three main forex trading sessions you should be aware of; the Tokyo (or Asian) session, the London (or European) session, and finally the New York (or American) session.

The busiest times are when these sessions overlap, for example, in the early hours of the morning in London, the trading session in Tokyo is just winding down.

European traders are getting to their desks and analyzing and digesting information from the Asian trading session, so early 6 am (GMT) is a great time to make trades – as the saying goes, “the early bird gets the worm.”

Research has found that the biggest movements in four of the major currency pairs – namely EUR/USD, GBP/USD, USD\JPY, and USD/CHF – are observed on Tuesdays and Wednesdays.

These days generally show the biggest movements in currencies as major data releases related to the economy are usually released on these days.

Fridays are busy as well, but only until 12am. During the second half of Friday, movements can often be unpredictable since major banks, hedge funds and financial institutions will close some of their positions for safety reasons over the weekend.

When not to trade forex

From my experience, you shouldn’t trade forex during any of these scenarios:

Bank holidays
Friday Afternoons and Weekends
End of December
When Angry or Frustrated
Asian Sessions
Release of News Events
Market Closing Time
Overnight

If you trade during any of these occasions, there is a high probability that you will record losses.

6 Factors that influence Forex internationally

Inflation
Employment
Balance of trade
Quantitative easing
Country politics
Interest rates

Inflation

An economy’s inflation rate is one of the main determinants of a country’s exchange rate, defined as the general price level of goods and services. A higher than expected inflation rate is generally negative for the associated currency since the price level is relatively higher than inflation in other countries, diluting its value.

An economy’s inflation rate and the purchasing power of its currency are inversely related, where a lower rate of inflation translates to an improvement in purchasing power. The difference between two currency’s inflation rates is known as the inflation differential and if it begins to widen, you would want to buy the lower inflation currency and sell the higher inflation currency.

The major data release for inflation is the consumer price index (CPI), one of the strongest indicators of an economy’s health. A high inflation rate discourages investment, reduces the purchasing power of consumers, and makes planning for the future more difficult.

Conversely, a low and stable inflation rate encourages investment, increases the purchasing power of consumers and businesses can plan for the future more easily.

Employment

Similarly, the employment situation in an economy is another determinant of a country’s exchange rate, since economic activity can be framed in terms of employment and unemployment. Since people possess skills, knowledge, and experience, this human capital can be used to produce more goods and services and improve productivity.

The more people that are employed, the higher the economic output should be. Therefore, employment data releases have a substantial effect on exchange rates. A higher than expected employment rate should boost the currency in question, whereas a lower than expected employment rate should depress the value of that currency.

For unemployment rates, this relationship is reversed where a higher than anticipated unemployment rate should act to depress the currency in question. The most important employment data released in foreign exchange markets is the US Non-Farm Payroll figures.

Some other important data releases are the unemployment rate, participation rate, and other labor market statistics, all of which have a moderate to high impact on exchange rates

Balance of trade

Trade with other countries is a major part of most economies and therefore the trade balance can affect the value of a currency.

If a country exports more and more goods and services, this will increase the demand for that currency and hence its price. However, if an economy increases its imports over time, this increases the selling pressure on that currency and it should depreciate over time.

The trade balance is simply the ratio of exports to imports for a given country. If exports are higher than imports, then the country is said to have a trade surplus – indicating that the demand for the economy’s goods and services, as well as its currency, is strong.

However, if imports are higher than exports, then the country has a trade deficit – indicating demand for the country’s goods, services, and currency is not so strong. This is the case with Nigeria, which is the major reason the Nigerian currency isn’t strong compared to the US dollar.

As with other indicators, trade balance data is usually released monthly and has a moderate effect on exchange rates.

A better than anticipated trade balance could be viewed positively for the currency and result in appreciation whereas a worse-than-expected trade balance will have the opposite effect.

Quantitative easing

Quantitative easing is an unconventional monetary policy tool that is used to expand a central bank’s balance sheet. It is often compared to printing more money, as it expands the base money supply.

Money supply and inflation are linked, where a higher money supply should translate into higher inflation and lower purchasing power. The USA, Eurozone, Japan, and the UK have all engaged in quantitative easing, with the Eurozone being the most aggressive. Also, the timing of their quantitative easing programs has differed.

Therefore, you can use these policies to make trades on the forex market. For instance, once the US started to wind down quantitative easing, the Eurozone geared up for more quantitative easing. You could have sold EUR-USD over the long term to take advantage of this development.

Also, the US Federal Reserve has recently indicated that further quantitative easing may be necessary. If this materializes, then it would be a good time to short a currency pair such as USD-ZAR or USD-MYR, since South Africa and Malaysia are two fast-growing economies that have not needed to implement quantitative easing.

Politics

The political situation of a country can have a significant effect on its economy. A new president or prime minister might make radical changes to the economy. There’s no better example than Donald Trump in the US, who has been increasing protectionist measures by raising tariffs against other countries and introducing more obstacles to trade.

Similarly, a revolution or coup can severely affect a country’s currency as exchange rates are often based on the perception of an economy. If people do not feel like their money is safe in a country, they will sell that currency and seek a safe haven in a different currency.

Politics is also important for a country’s stability. For instance, China has a one-hundred-year plan in place as it is a communist state, whereas many Western countries change their leaders every four or five years.

The relative instability could have an adverse effect on the economy, as problems from the last administration are addressed but a whole new set of problems are introduced, leaving the next leading political party to pick them up once they are in power.

Interest rates

Interest rates are the most important tool central banks have and they are used to influence lending and savings and borrowing or consumption. A higher interest rate incentivizes investment and savings since people will get more interest on their deposits and receive more interest payments when lending to others.

However, a lower rate of interest incentivizes borrowing and consumption, since it is cheaper to borrow money for that new car or house someone has always wanted. The rate of interest also affects the flow of money across borders.

For example, suppose interest rates in the UK are 2 percent while in Germany they are 5 percent. People with savings in the bank would move their money into German banks to get a higher rate of interest, in effect, selling their Pounds and buying euros. Therefore, changes in the interest rate are high-impact events for exchange rates.

Also, monetary policy announcements are made regularly by the major central banks and if you think the interest rate will be lower or higher than expected, then you can trade that currency and take advantage of the volatility following these announcements.

10 Forex trading tips for beginners

Start gradually

It is advisable to begin your trading with small amounts of money and to build your investment portfolio slowly. Besides, limit the number of positions you open at a time. The more positions you have, the more difficult it will be for you to weigh them carefully, making it easier for you to make losses.

Use Stop-Loss Order

This is probably the most important advice that any forex trading pro wishes they had when they started out. Irrespective of your strategy, forgetting the Stop-Loss Order means that you haven’t limited your losses.

Having a Stop-Loss Order helps you eliminate the losses, especially when the rates change unexpectedly.

The 1/6 Rule

Avoid the risk of getting caught in the trading excitement. Overtrading has never been a good idea. Experts advise against risking more than 1/6 of your free trading capital, especially when you don’t feel completely confident.

Stick to Your Strategy

Good traders have their own plan, and the best make a effort to hold onto it. Write your plan on a paper and follow it systematically. Write down the prices of each transaction and why you selected the particular strategy in order to analyze it later.

Do not stop the profits

While it is advisable to get rid of greediness, some beginners close their transactions too soon hence missing out on the full profit potential of their trading position.

Follow the Trends

Trends indicate what is coming on the market. That is why you should avoid playing against the trend. Besides, in most cases, making transactions against a trend results in losses.

Analyze the trend and look for a beneficial position before making your move.

Study the Forex Charts

It is worth noting that each foreign market has different tracking systems and charts. Moreover, it is crucial to differentiate multiple time frames before making each trade. For instance, you can check out the daily and hourly charts to identify the best time for opening and closing positions. Besides, the weekly graphs are ideal for observing trends.

Trends have momentum

Trends tend to develop quickly as the number of traders following them increase. Beginners should always be ready to identify when a trend starts and use it to their favor.

Always scrutinize your past trades

Trends tend to develop quickly as the number of traders following them increase. Beginners should always be ready to identify when a trend starts and use it to their favor.

Close unsuccessful positions

Beginners tend to hold their unsuccessful position open for long with the hope that they may turn to be profitable. However, this is never likely to be the case. Therefore, it is best to close them early enough. This allows you to concentrate on other trading positions.

Forex trading terminologies

These different terms are associated with forex trading, and you should understand what they mean in order to educate yourself.

Leverage

Leverage, which represents a margin trading ratio, enables traders to borrow a certain amount of money that allows them to trade in much bigger deals. Moreover, leverage allows one to trade using more money than they have in their account.

Therefore, you “leverage” your account’s balance to place a bigger trade. Currency rates move very slowly. This makes small trades unfashionable as they only return small profits and losses for every pip rate changes.

Therefore, leveraging helps one to trade in larger deals hence amplifying their potential profits and losses.

Copy trading

This is a term used to describe a novice that understudies a professional and experienced trader’s strategies, and copies the same strategies for maximum profitability. Copy trading is offered by most of the best Forex platforms.

It helps a beginner minimize the risks of jumping into trading without much experience, thereby minimizing losses associated with trading.

Pip

A Pip, or Price Interest Point represents the smallest change in a currency pair. Typically, it is the fourth decimal point, although many brokers quote using the fifth decimal. However, the fifth decimal doesn’t really affect the price as it changes really quick.

Currency pairs that include the U.S. dollar, a pip is 1/10, 000 of a dollar, whereas when the currency pair includes the yen, a pip is 1/100 of a yen because the yen is closer in value to 1/100 of other major currencies.

Spread

In Forex trading, brokers quote the bid and ask price for the currency pairs. The bid is the price that a trader can sell the base currency while the ask is the price they can buy the base currency. Spread refers to the difference between the two prices.

Besides, this is how the “no commission” brokers- those who do not charge a separate fee on traders’ transaction- make their money.

The spread is measured in pips. Most currency pairs- the base currency and quote currency- have a pip value equal to 0.0001. For instance, take the following quote; EUR/USD = 1.1051/1.1053 the spread is 0.0002, which equates to 2 pips.

Bulls and bears

A bear is a downward trend or fall in value of a currency while a bull is an upward trend or rise in the value of a currency. When you sell, you are said to be bearish. However, you are said to be bullish when you buy.