Forex Trading in Nigeria

What you need to Trade Forex in Nigeria

Here are the basic steps involved in forex trading and opening an account with a forex broker:

1. Learn about Forex Trading: It is essential to first learn how to trade forex before you start your trading journey. Learn about how the Forex Market works and read about Technical & Fundamental analysis, and study charts & different currency pairs, how they have moved historically.

   You must take 2-3 months & learn as much as possible about Forex Trading. A demo account can be used to trade with virtual currency before making actual trades. Beginners can gain experience, learn terminologies, understand volatility, check suitability, and test their strategies using demo accounts.

2. Choose a Forex Broker: The next step is to find a forex broker that is both safe and reliable. Any Forex Broker that you choose must be licensed by at least one Tier-1 or Tier-2 financial regulatory authorities.

   All the Forex brokers that are popular in Nigeria like FXTM, AvaTrade, HotForex, FBS & OctaFX register their clients under Offshore regulations like Belize, Mauritius, etc. So, you must make sure that the broker’s Group is at least regulated with FCA, CySEC, FSCA, or ASIC, even if the broker is registering your account under a different regulation.

   For example, HotForex registers the traders from Nigeria under HF Markets (SV) Ltd, which is in St. Vincent & the Grenadines. But HotForex Group is licensed with FCA, FSCA & CySEC. This makes HotForex Group a safe Forex broker for traders in Nigeria. Even though your account is not registered under Tier-1 regulation, but the fact that the broker that you are trading with is well regulated reduces the risk for safety of your deposited funds.



3. Choose your Account Type: Generally, all Forex Brokers offer multiple Account Types, with varying fees & features. For example, the Zero Account at HotForex has a lower spread than Micro & Premium Accounts, but there is an extra fees of USD 6-8/lot (depending on the Forex pair).

   You should also research the different types of accounts provided by the broker.

4. Fill out an application form and complete KYC: You will need to register and open a trading account with the forex broker. This will also involve completing KYC norms, but this can be done completely online.
5. Choose a username and password: Once your account is approved, you will receive a username and password or you can choose your own.
6. Login to your account: Next, you can use your username and password to log in to your trading account through the broker’s website.
7. Deposit money into your account: You will need to deposit some money into your account in order to start trading. Each broker has its own minimum initial deposit requirements.
8. Practice trading: You can practice forex trading through a demo account. This is highly recommended for new traders.
9. Stay informed: A key part of being a successful forex trader is staying informed on the latest developments and news.

What do you need for online forex trading?

There are certain things that you will need in order to trade forex online. Here are the basics:

1. Device: You will need a personal computer, a laptop, or a smartphone in order to be able to access the markets. You will need to make sure that your device is compatible with the trading platform offered by your broker.
2. Reliable internet connection: It is essential to have a reliable and fast internet connection. The internet connection will allow you to place your orders. You will also need the connection to be fast so that you can react quickly to changes in the market.
3. Trading platform: Once you register with a forex broker, you will be able to download or install a trading platform on your device. The trading platform is the software that you will need to conduct your trading activity.

Forex Trading Strategies

Trading without strategy is like sailing without a compass. The sailor has no idea about the wind speed or the direction. That’s why the practice of forex analysis plays a vital role in currency trading. You look at the changes in the values of currency pairs and the forces that are influencing those price movements.

Traders use both fundamental and technical analysis for creating a profitable strategy. Many expert traders combine both techniques to take a hybrid approach. In short, the knowledge of technical analysis will tell you when (to buy or sell) and fundamental analysis tells you why (the price movements). Both are indispensable weapons for a successful forex trader.

Let’s deconstruct both methods one by one.

Fundamental Analysis

What economic factors will impact the demand and supply of a currency? Welcome to Macroeconomics 101, the law of demand and supply. If the demand for a currency is increasing, the trader may assume the prices will rise. On the other hand, a demand reduction may be an indication of an eventual fall.

However, it’s not that simple! There are many factors such as economic health, political stability, global events, and others that influence the expansion and contraction of a particular currency. For instance, the US Sub-Prime Lending Crisis in 2008 caused a massive breakdown of financial systems worldwide.

The fundamental analysis generally involves the following economic indicators:

1. Economy:

In addition to global economic events, the localized changes in a national economy can also influence the currency prices of that country. For instance, the increased commodity prices globally can strengthen Australian dollars.

2. Political Changes:

Although government changes are not a frequent affair, currency prices can be affected during a transition period. Developed countries have relatively stable regimes in comparison to developing countries. Political instability is the main reason why the currencies of many African countries are so unpredictable.

3. Monetary and Fiscal Policy:

Central banks use monetary policy as an effective tool to control the demand and supply of a currency. They can reduce the interest rate in an economic slowdown and can increase to curb the inflation caused by economic growth. The fiscal policy entails taxation and government spending. Higher taxes can drive slower credit and economic development. Both government policies can have a significant impact on the national currency.

4. Activities of Major Participants:

Main participants such as banks, financial institutions, or hedge funds may buy or sell a specific currency to up or down the prices. You will be in much better positions if you have an idea about the main speculators of the forex market.

5. Economic data and reports:

Main participants such as banks, financial institutions, or hedge funds may buy or World governments publish statistical data and reports that reveal the economic health and performance over a period. Many financial reports like employment data, inflation rate, GDP, and foreign exchange reserve can indicate regional economic conditions, which can dramatically impact the local currency. A forex dealer can use an economic calendar to avoid unwanted surprises from the release of new data.

Technical Analysis

Charts and graphs are the primary tools of technical analysis. Charts help traders identify historical performance, ongoing trends, and price movements and calculate risk to maximize gains from currency trading.

Understanding different charting formats such as line, bar chart, and candlestick is essential to develop a solid trading strategy for beginners. The following are important terminologies associated with technical analysis.

1. Bar chart:

It is the most basic charting which helps users select a currency and its performance for a fixed period. The bar chart shows the highest and lowest currency price points and average performance over the period chosen.

2. Candlestick:

It also displays the same information: open, low, high, and close. However, the representation of data is very different from the bar chart. It becomes easier for users to see the highest and lowest peaks of the currency movements with thin vertical lines.

3. Price Trends:

Trend is a term used in technical analysis of capital markets that depicts the direction of the price. Generally, the price of the underlying instrument moves in a particular direction until a trend reversal is witnessed. The tops and bottoms of the charts can be analysed to identify the price trend at a given time.

Trendlines and trend reversal are very important components of technical analysis. A higher-high price action followed by a higher low represents an uptrend (bullish) while a lower low and lower high depict a downtrend in price movement.

4. Support and Resistance

Support and resistance are the prices at which the trends are likely to reverse or stop moving further in that direction. There can be multiple support and resistance levels for a single financial instrument.

Support is the lower limit at which the price trend is likely to reverse or stop moving further below. Resistance is the upper limit on the price trend. Whenever a resistance or support level is broken, the price moves significantly. These limits are created due to trend reversals and stagnancy of prices at the price that same particular level. A support or resistance level gets stronger every time it resists the price movement.

5. Moving Average

As the name suggests, the moving average is an important indicator that depicts the average price movement in a given time. A moving average indicator creates a series of averages of different subsets of the full data sets of prices in a particular time interval. Current prices below the moving average depict a buying opportunity while the prices above the moving average may benefit the sellers.

6. Fibonacci Retracement

Fibonacci retracement levels are based on the Fibonacci sequence and are used to identify potential support and resistance levels. Traders use these levels to determine potential price retracement areas during a trend.

7. Bollinger Bands

Bollinger Bands consist of a moving average (typically 20-day SMA) and two standard deviations above and below the moving average. They help traders identify periods of high or low volatility and potential price breakouts.

8. Candlestick Patterns

Candlestick charts display price data in a visual format using candlestick patterns. Traders analyze patterns such as doji, engulfing patterns, and hammers to identify potential trend reversals or continuation.

9. Volume Analysis

Volume analysis examines trading volume accompanying price movements. It helps traders understand the strength or weakness of a price trend and identify potential reversals or breakouts.

10. Chart Patterns

Chart patterns, such as head and shoulders, double tops, and triangles, are formed by price movements and can indicate potential trend reversals or continuations.

There are hundreds of strategies that are used in the technical analysis of financial instruments. Technical analysis works well on instruments with high liquidity like the forex market.

Experienced traders often use technical analysis in combination with fundamental analysis to understand why the value of a currency rises or falls for the selected period. For example, if the fundamentals indicate that the US Dollar will strengthen against the Euro due to policy divergence, and the technical analysis also indicates the same, then it is much more likely that your strategy may be successful as compared to incomplete research.

You can use simple mathematical tools such as moving averages, trend lines, and others for technical analysis. You can learn about more advanced concepts like Elliott Wave Theory, Fibonacci Studies, and Pivot Points as you progress.

Steps to Open a Forex Trading Account in Nigeria

The account opening process at every regulated broker is nearly similar. However, the process and time required to open the live account can vary from broker to broker. Following are the steps to open a live trading account in Nigeria.

Step 1: Select a Broker

Traders must check and compare every aspect of the broker and choose the most suitable broker with regulations, low fees, availability of desired instruments, helpful customer support service, convenient deposit and withdrawals, and a user-friendly trading platform.

Step 2: Visit their Website or Download the App

After choosing the broker, you need to visit their official website or download the application to open the account.

Step 3: Enter Basic Details

The first signup process involves providing basic details like name, phone number, email, and country of residence. Some brokers may ask for a few more details.

Step 4: Select Account Type

Most forex and CFD brokers offer more than one account type with different pricing structures, trading platforms, or trading conditions. Traders must choose the most suitable account type while opening their accounts.

Step 5: Document Verification

After configuring the account and answering a few basic questions related to forex trading, traders are required to verify their documents by uploading soft copies. Brokers will ask for name and address proof which can be done with a passport, national identification document, etc. Each broker can take different times to verify the document ranging from 2 hours to 24 hours on business days.

Step 6: Deposit Funds

Once the account has been verified, clients can deposit funds through the accepted methods from the website or application of the broker. It is important to check the associated fees and time required to process the transaction.

Step 7: Download the Trading Platform and Start Trading

Once the deposits are visible in the account equity, you can open trading positions on available instruments through the trading platform. The trading platform can be downloaded on mobile and desktop devices and can also be accessed through the web.

1. Safety: The reputation of the forex broker is an important consideration. There are lots of fraudulent forex brokers operating online. Hence, you should only register with forex brokers that you can trust. The best way to gauge whether you can trust a forex broker is through the licenses by regulatory authorities that they possess. You should cross-reference their license numbers (available on their website) with the license number available on the regulator’s website.
2. Fees: Each broker charges different fees for their services. These fees can vary wildly from broker to broker. Hence, you should choose a forex broker that charges reasonable fees. There are several components to the fees charged by a forex broker: minimum deposit, spread, commissions, overnight swap rates, deposit fees, withdrawal fees, and inactivity fees.
3. Account Types, Currency Pairs, and Other Instruments Available: It is important to check which account types the broker offers. The account type will determine how much you are charged per trade, which instruments are available, whether you get DD or NDD services, and so on.
4. Services Available: What are the features offered by your broker and your trading platform? Do they offer a news feed? Analysis? Custom leverage? Risk management tools?
5. Deposit and Withdrawal Methods for NGN: As a Nigerian trader, you should check the deposit and withdrawal methods available for your currency. Also, make sure that you check the deposit and withdrawal fees.
6. Ease of Use and Device Compatibility: Make sure that the trading platform offered by your broker is compatible with the devices that you use. For example, if you use a Windows computer, then make sure that the trading platform can be downloaded and installed on a Windows computer.
7. Customer Service: The customer service and support offered by a forex broker is an important metric. It decides how problem-free your trading experience will be. Check reviews of different forex brokers to understand which ones provide good and helpful customer service.

Trading platforms are offered by forex brokers. A broker can offer a single trading platform or a variety of them. The most common trading platforms offered by brokers are MetaTrader 4, MetaTrader 5, or cTrader. Some brokers also offer their own proprietary trading platform.

As of date, there are no forex brokers licensed by the Nigerian government since the industry is still unregulated. Hence, before choosing a broker, you should check whether they are regulated by a tier-1 financial authority like the FCA of the UK or the ASIC of Australia.

There are a few top-tier brokers that have local offices in Nigeria and offer local deposit methods to Nigerian traders. These are OctaFX, Hotforex, and FBS.

You should make sure that the forex broker websites that you visit are genuine. Nigerian traders often end up visiting fake look-alike websites and get scammed. There are several scammers operating online that pose as regulated brokers. This makes it risky for retail traders.

Hence, it is important to only register your account on genuine websites. You should also check the licenses held by the broker and cross-check them with the financial regulator’s website.

Pros of Forex Trading

Following are the advantages of trading forex:

Largest Capital Market

You invest in the world’s largest financial market. With daily transactions crossing over USD 5 trillion, the sheer size of the forex market makes it truly a global marketplace with several profit opportunities.

24-Hour Market

The forex market operates around the clock so that you will find a trading opportunity any time of the day in at least one global time zone. As the forex market is a decentralized OTC market, its working hours are not subject to any centralized exchange system. For instance, trading hours begin at 5 PM EST in the USA on Sunday and rolls continuously with other markets until Friday at 5 PM. Note that even though currency trading is restricted for retail traders on weekends, the exchange rate keeps moving.

Low Capital Requirement and Lower Transaction cost

In addition to very low investment requirements, even the transaction cost of trading forex is relatively lower. For instance, you can start dealing in currencies with just USD 100 or even lower. The main earning of a broker comes from the bid-ask spread. Spread is measured in pips, the difference between the sell and buy price of a currency. However, some brokers do charge a commission or flat fees per transaction. You should factor in commission and spread while choosing a broker to lower your overall trading cost.

Availability of Leverage

The availability of high leverage is perhaps the main reason why forex trading appeals to so many people. It enables you to place a higher trading order with minimum capital.

Almost all the forex brokers offer leverage where you can borrow against deposited money in your trading account. It’s similar to taking a mortgage against your property; the only difference is that the margin requirement is very low. For instance, you can place a USD 100 order with just 3.33 US Dollar if your broker offers a 1:30 leverage ratio. However, leverage is a double-edged sword. It can amplify your losses, so heed caution when trading forex with leverage. You should avoid using high leverage.

Most Liquid Market

Forex market is also the world’s most liquid market. Liquidity refers to how quickly an asset can be sold or bought without affecting its value. Major currency pairs such as EUR/USD or USD/JPY are considered most liquid than exotic currency pairs.

Major pairs are more liquid hence the spread will be lower on major pairs. The spreads on less traded pairs are higher due to low liquidity.

Volatile

The same volatility, which makes it riskier for traders, can also present ample profit opportunities. Volatile market conditions cause rapid changes in the value of currency pairs, thus, increasing your chances of gains from the trade.

But this is also a big risk. If a currency pair changes in its value by a lot then it is considered volatile and can be a risk for investors as you can lose big if you are on the opposite side. For example, USD/TRY is considered a very volatile currency pair. You may lose quickly if you are in the wrong position, also you must consider the Swap Rates when trading such currency pairs.

Scalable

Scalable means you can trade in mini, micro, or standard lots, making it easier for traders to control investment size and capital exposure.

Affordable Technology

You don’t have to spend money on acquiring expensive hardware and software to start with forex trading. All you need is a computing device or a smartphone with a reliable internet connection. Your broker will provide charting and trading technologies at no cost once you subscribe.

Cons of Forex Trading

Following are the challenges or disadvantages of trading forex:

High Risk

Forex market is not ideal for many traders due to its high risk. The market risk in forex trading is much higher compared to other capital markets like stocks, commodities, etc. The involvement of leverage further increases the risk of losing a substantial amount within a few seconds.

The market is active 24 hours a day and any news event around the globe can affect the prices of currency pairs. Hence, at times it becomes impossible to correctly predict the price movement.

Lack of Transparency

There is no particular location from where the forex market is controlled or managed. Foreign currencies are exchanged in many ways mainly through central banks, private banks, large financial institutions, etc. The forex market is largely influenced by large-scale market makers, liquidity providers, and banks. Hence, there is no transparency about how the trade order is getting executed. The trading volume and market sentiment are also difficult to predict in the forex market.

Complex Valuation Method

The value of one currency in return for another keeps on changing due to multiple reasons at every minute. It is quite complex for retail traders to calculate the valuation of one currency in terms of another. The valuation depends on the economic and financial details of the involved currencies and their predictions. Compared to other capital markets, it is much more complex to do a valuation of the currencies.

Difficult to Learn

Stocks, commodities, and other markets are much easier to comprehend compared to the forex market. In the stock market, traders can get assistance from experts and portfolio managers. Comparatively, it is challenging to learn forex trading and understand the forex market. Traders have to learn most of the forex trading on their own.

These are the common ways in which a forex broker will charge the traders in Nigeria for trading.

1) Spreads: Spreads are the major component of fees involved in forex trading. This is the difference between the bid and ask price or the buy and sell price.

Wider spreads mean lesser profit and lesser probability to make profits in a forex trade. Clients should seek brokers that offer narrower spreads.

2) Trading Commission: The commission that is incurred while executing trade orders is called a trading commission.

Some brokers offer commission-based trading on currency pairs with low spreads or zero spreads. Commission-based spread-free trading is considered ideal for large-volume traders and scalpers.

A commission on forex pairs can range from $2 to $10 for a Roundturn trade (both sides) of a Standard Lot. Details of commission (if charged) must be checked before opening the account.

3) Swap Fees: Swap fees are also called overnight charges. These are the charges that are incurred if a trading position is kept open overnight.

Orders that are opened and closed on the same day will incur no swap fees at all.
For every night the position is kept open, the swap fees will be added. Swap rates or overnight charges differ from broker to broker on every instrument.

4) Non-Trading Charges: These are the charges that will be incurred without executing trade orders. Non-trading charges can be of various types and can be tricky to identify as they are not clearly mentioned.

5) Inactivity Fee: An inactivity fee is a fee that gets deducted from the account balance if no trade orders are executed in a prolonged period of 3 months to 1 year.

6) Deposits & Withdrawals: Deposits and withdrawals can incur additional commission for some or all of the methods. Clients must check the commission or fees for deposits and withdrawals.

Other non-trading charges include account opening fees, conversion fees, internal transfer fees, etc. Subscription to additional services can also cost additionally.

Clients must enquire from the support executives about the non-trading charges separately.