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Forex trading (foreign exchange trading) has seen a significant rise in popularity in Nigeria over the past decade. As Africa’s largest economy and with a rapidly growing population, Nigeria has embraced forex trading as a way for individuals to generate income and diversify their investments. With increased internet penetration and mobile technology, forex trading has become accessible to millions of Nigerians. This article explores the essentials of forex trading in Nigeria, its legality, the role of brokers, and tips for success.
What is Forex Trading?
Forex trading involves the buying and selling of currencies in pairs, aiming to profit from changes in exchange rates. For instance, a trader might buy Nigerian Naira (NGN) and pay for it with United States dollars (USD) if they predict the niara will strengthen against the dollar.
Forex trading revolves around currency pairs, where one currency is purchased and paid for using another currency. The first currency ins a currency pair is the base currency and the second is the quote currency.
Example: In the currency pair USD/GBP, USD is the base currency and GBP (Sterling) is the quote currency. The exchange rate shows how much of the quote currency you need to pay to get 1 unit of the base currency. Example: The exchange rate 0.7900 USD/GBP means that 0.7900 GBP equals 1 USD.
The forex market is the world’s largest and most liquid financial market, operating 24 hours a day, five days a week. It allows traders to participate from anywhere in the world, including Nigeria, and react to real-time economic and political developments that influence currency values.
Is Forex Trading Legal in Nigeria?
Yes, forex trading is legal in Nigeria. It is not directly regulated by the Central Bank of Nigeria (CBN). Instead, the Securities and Exchange Commission (SEC) oversees the operations of brokers and financial institutions that facilitate trading, including forex trading.
Why is Forex Trading Becoming So Popular in Nigeria?
Several factors contribute to the growing interest in forex trading in Nigeria. Here, we will take a look at some of them.
High unemployment rates
The high unemployment rate has led many Nigerians to seek alternative sources of income, and forex trading offers the flexibility to earn money without being employed by someone else. Forex trading online does not require a big capital to get started. You do not need to have a certain formal education or certification to do it, and neither are the right contacts required to get your foot through the door.
Nigeria´s native currency, the Naira, is characterized by volatility and inflation. This has created an environment where many people in Nigeria have been forced to learn the basics about the currency market and how currencies behave, simply to survive in everyday life.
When the Naira was first introduced in 1973, it had an official exchange rate of US$1.52 for ₦1. Quickly, a black market developed where you would get more Naira for a dollar than the official exchange rate.
Even if we only go back a few years into the past, we see a lot of major things happening to the Naira. In 2016, it was pegged at 197 Naira to 1 USD for several months, before being allowed to float from June 20, 2016. In October the following year, the Nicaraguan government launched the eNaira – a digital version of the niara. In 2022, Nigeria’s central bank stated that the scarcity of currency in Nigeria was caused by money-hoarding politicians that were stashing bills and thereby keeping them out of circulation.
In early 2023, the government attempted to force the population to switch over to newly-created Naira notes, claiming that it would help stem vote-buying in the lead-up to the 2023 general elections. Not only did they pronounce the old notes to no longer be legal tender, they also deliberately released too few notes into circulation as they wanted to force people to start using the eNaira instead. Extensive street protests ensued in January and February. Eventually, the Supreme Court invalidated the government´s pronouncement and confirmed that the old notes were still legal tender.
On June 14, 2023, the Naira fell by a whopping 23% in a single day against the USD, as the Central Bank abandoned its currency peg. The Naira dropped to ₦600 to US$1 on that day, and on July 19, it reached a record-breaking low of ₦853 to US$1. Another notable period of decline was February 1-5, 2024, when the Naira dropped from 898 to US$1 to 1,400 to US$1. By 30 July, 2024, the exchange rate was ₦1,600 to US$1.
Having to survive in this type of environment has pushed my Nigerians to develop an interest in exchange rates, the forex market and the various forces that help establish the value of different currencies in relation to each other. A black market for Naira still exists in Nigeria, where 1 USD will give you significantly more Naira than the official exchange rate.
Improved internet access and mobile devices
The increased availability of smartphones and affordable internet services has helped fuel the growth of forex trading (and other types of online trading) in Nigeria. Online platforms and user-friendly mobile apps have made it easier than ever for traders to enter the market.
This is not only an urban phenomenon; they widespread availability of internet connections in rural and semi-rural parts of Nigeria has made it possible to engage in trading without having to move to the city, and online trading can be especially appealing in areas where the job market is far from stellar and good jobs are hard to come by.
Educational resources online
There is a today a wealth of resources available online, which as made forex trading more accessible in Nigeria. A prospective trader does not have to go through formal economics training at a university to get started learning about subjects such as foreign exchange rates, geopolitics and trading. This has helped lower the barriers to entry for people interested in getting started with successful forex trading in Nigeria.
Many Nigerians speak English
English is the language of the forex trading world and also the dominating language when it comes to educational material about forex trading. Therefore, speaking English lowers the threshold to get started with forex trading. In Nigeria, a lot of people speak English as a first or additional language, and this has contributed to the popularity of forex trading.
Over 500 different local languages are spoken in Nigeria, and English was therefore chosen as the official language for independent Nigeria after the end of British colonization, to have a lingua franca without favouring any specific one of the native languages. Both the constitution, the pledge and the national anthem are in English. Even though most Nigerians have one of the native languages as their first language, English is widely used for education, business transactions, official purposes, and in the media.
Therefore, many Nigerians grow up with a lot of exposure to English, learn to speak English as an additional language and are comfortable with using it both online and offline. Estimates show that roughly 60 million people in Nigeria can speak English. Even though that is not even 25% of the total population, it is still a very large number of people who can go online and access the English-language world of forex trading. Also, increased urbanization and increased exposure to English-language media from all over the world is helping shape a clear trend where the number of English speakers in Nigeria will soon be even higher than today.
Starting Forex Trading in Nigeria
To begin forex trading in Nigeria, individuals need to follow a few essential steps.
1. Educate Yourself
Understanding the fundamentals of forex trading is crucial. Learn how currency pairs work, what factors influence exchange rates, and how to use trading platforms effectively. Many brokers provide free online courses, webinars, and demo accounts to help new traders build their knowledge. It is not a good idea to get all your information from the same source. Always be critical and evaluate the information you come across.
2. Develop a trading strategy and risk management strategy
Use your knowledge to develop a trading strategy and risk management strategy that is suitable for you, your trading goals, your risk-willingness, and more.
3. Practice with a Demo Account
Open a free demo account with a broker. Before trading with real money, it’s wise to practice on a demo account. This allows you to familiarize yourself with the trading platform, test strategies, and gain confidence without risking your funds. Test run your trading strategy and risk management strategy and see how they work against real market data.
4. Choose a Reliable Broker That is Suitable For Your Trading- and Risk Management Strategies
Selecting a broker is one of the most important decisions a trader will make. Key factors to consider are Nigerian SEC-authorisation, what it would cost to use your trading strategy, how the trading platform works, customer support, and deposit/withdrawal methods. Look for brokers that provide competitive spreads, low fees, and access to a robust trading platform.
Some brokers offer Islamic accounts for Muslim traders, adhering to the Sharia ban against interest. Nigeria is home to some of the world´s largest Muslim and Christian populations, so both Muslim and non-Muslim account types are popular in the country. Generally speaking, northern Nigeria have more Muslims and southern Nigeria more Christians.
Payment options are another important factor when picking a broker. Brokers that support Nigerian payment methods like local bank transfers, Nigerian e-wallets, and even cryptocurrencies offer added convenience.
5. Open a Trading Account
Once you’ve chosen a broker, you can open a real-money trading account. You can expect to be required to confirm your identity by submitting digital copies of the required documents, such as a government-issued ID and proof of address (e.g. a utility bill in your name).
6. Fund Your Account and Start Trading
Once ready, you can fund your trading account using methods like bank transfers, credit cards, or e-wallets, depending on the broker. Some brokers support deposits in Nigerian Naira, making transactions seamless for local traders.
Risks of Forex Trading
While forex trading offers exciting opportunities, it also comes with risks. The volatile nature of currency markets means prices can change rapidly, leading to potential losses. Leverage, which allows traders to control larger positions with smaller investments, can amplify both profits and losses.
Traders must also be cautious of unregulated brokers and scams. Using a regulated broker is essential to ensure your funds are secure and trades are executed fairly.
Tips for Successful Forex Trading
To succeed in forex trading, traders should adopt a disciplined approach. Start with a clear trading plan that outlines your goals, risk tolerance, and strategies. Avoid emotional decision-making by sticking to your plan, even during periods of market volatility.
Risk management is crucial. Never risk more than you can afford to lose on a single trade, and use stop-loss orders to limit potential losses. Continuous learning is also important, as the forex market is influenced by economic data, geopolitical events, and central bank policies. Staying informed will help you make better trading decisions.
The Future of Forex Trading in Nigeria
Forex trading in Nigeria is set to continue its upward trajectory as more people recognize its potential as a source of income. Increased access to technology, coupled with educational initiatives by brokers and trading communities, will likely encourage more Nigerians to enter the market.
While challenges like unregulated brokers and market volatility persist, the growth of forex trading in Nigeria highlights its potential as a financial tool. For traders who approach the market with knowledge, discipline, and caution, forex trading can be a rewarding endeavor.
By leveraging the resources available and partnering with reputable brokers, Nigerians can navigate the forex market with confidence.