Forex Trading in Nigeria

Forex Trading is not regulated in Nigeria. If you are looking to trade forex then it is important to understand the risks & only trade via Tier-1 regulated brokers. We explain everything in this guide.

Editorial Team

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Forex trading is not regulated by any regulatory authority within the jurisdiction of Nigeria. Nigerian clients are registered under offshore regulations. However, you can trade forex via forex brokers that are licensed with multiple top-tier regulators.

Summary Table of Best Forex Brokers for Beginner traders in Nigeria in 2022

Broker Name Highlights Trading Fees (Benchmark EUR/USD Standard Accounts) Account Minimum Max. Leverage Learn More
Hotforex Nigeria

HotForex

HotForex is a well regulated forex broker licensed with FCA, FSCA & CySEC.

Commissions
Minimum spread of 0.1 pips

with Zero Account (plus $7 commission per lot)

Account Minimum
$5
Max. Leverage
1:1000 for forex
Open Account

on HotForex


Forex trading, also known as currency trading, refers to the trading of global currencies. While forex trading, traders buy one currency and sell another. Forex trading is done for a variety of reasons such as hedging against currency risk, maintaining forex reserves, and speculating on the price movements for profit.

Forex trading has been gaining in popularity in Nigeria over the last decade. Retail investors are turning towards forex trading in greater numbers due to high liquidity and high leverage in the forex trading market.

Currently, forex trading is not regulated in Nigeria. This does not mean that it is illegal. Nigerian traders can trade forex through international forex brokers.

In this guide, we’ll talk about everything you need to know about forex trading before starting.

Chapter #1

What is Forex Trading?

Here is a brief overview of forex trading.

Understanding the Forex Market and its Participants

The forex market is the largest financial market in the world. The forex market has an average daily turnover of more than $6 trillion. This also makes the forex trading market the most liquid market in the world. The size of the global forex market has only been increasing every year.

Similar to other financial markets, the exchange rate between different currencies depends on demand and supply, amongst other factors. The price of a currency moves upwards if there are more people buying the currency than those selling the currency. However, retail traders are responsible for a very small proportion of daily trading volume.

The forex market is an example of a decentralized market. This means that there is no central control over the market. The decentralized nature of the market makes it possible for traders and investors to deal directly with each other rather than rely on a central exchange.

The global forex trading market is open at all hours during weekdays. It is closed during the weekends. This 24/5 activity makes it convenient for traders from all around the world to trade with each other. A forex trader can choose his or her own hours of trading. The spreads generally get wider during the inactive hours but trading can still be done at any time of the day.

People from different time zones interact and make the market active for 24 hours a day. However, the forex market can be divided into four main time zones. These different time zones correspond with the Australian market, the United States market, the European market, and the Japanese market.

There are several participants that contribute to the forex market in different ways. Some of the most major players in the market include the banks (both central and commercial), worldwide governments, large multinational companies, retail investors and traders, investment management firms, brokers and dealers, money-transfer and money-exchange companies, and so on.

For example, as a retail trader, you can use a bank to convert your currency from NGN to USD. There can be different purposes for making the exchange including travel and business needs.

How Are Currencies Traded and the Various Forex Instruments

Forex is traded in pairs. For example, a currency pair is NGN/USD. This currency pair allows you to buy or sell NGN in exchange for USD. There are numerous currency pairs operating in the global forex market.

However, forex traders should know that the USD is the most traded currency in the world. Most of the popular currency pairs in the world involve the USD. For example, EUR/USD is one of the most prominent currency pairs.

Currency pairs can be traded through a variety of financial instruments. A financial instrument denotes the type of contract through which you are making the trade. Different financial instruments include spot forex contracts, forward contracts, contracts for difference, and so on.

We have briefly covered each financial instrument here:

Spot forex contract – A spot forex contract is the most widely used instrument for forex trading. This is the traditional way in which forex trading is and was done. A spot forex contract allows currencies to be exchanged immediately and the delivery and settlement of the contract are done instantly.

Futures forex contract – This is a more complicated forex contract. A futures forex contract allows you to deliver and settle your trade at a later date. The prices are agreed upon beforehand. A futures forex contract allows you to take advantage of future price movements in the present.

Currency swaps – A currency swap allows traders to exchange their loan denominated in one currency for a loan denominated in another currency. This is why its called a “swap”. A swap allows you to repay the principal amount and interest amount in a different currency.

Currency Forward – A forward contract allows you to exchange one currency for another at a future date, however, the exchange rate is determined at the present. This allows for future exchanges while negating the effect of price movements in the forex market. This type of contract is most often used for international trades.

Options forex contracts – An option contract provides the buyer with the right, but not the obligation, to exchange currency at a later date at a predetermined exchange right. The buyer does not have to exchange the currency on the future date, but they can. For this right, the seller is paid a premium at the time of making the contract.

Non-deliverable forward (NDF) – A non-deliverable forward allows a buyer and a seller to settle a currency exchange without actually exchanging any currency. This is why the term “non-deliverable” is used. A Non-deliverable forward is the same as a forward contract, with the exception that the actual currency is never exchanged.

CFDs – A CFD, also known as a contract-for-difference, allows forex traders to trade currency. Under this type of contract, only the price difference between the opening of the contract and the closing of the contract needs to be paid.

What is Online Forex Trading and How Does it Work?

Online forex trading allows retail traders (also known as individual traders) to trade currencies and profit from price movements in the currency market. Online forex trading is gaining in popularity around the world since it provides traders with access to a highly liquid and volatile market.

Forex traders can trade online by taking advantage of the high leverage provided by global online forex brokers. Online forex trading can be done through a variety of financial instruments (as detailed above) but the most commonly used instrument is CFD. CFDs allow traders to only pay the difference in price and the actual currency does not need to be exchanged.

The barrier to entry in online forex trading is very low. You only need to make a small minimum deposit into an online brokerage account in order to get started. You can trade using margins, which means that your deposited amount only needs to cover the difference between the trades. Further, online brokers offer high leverage which means that profits (and loss) can be very high.

Online trading is done through trading platforms like MetaTrader 4. These trading platforms offer an easy way to keep track of price movements of different currencies and to execute trades. Online forex brokers offer a trading platform for free to their users.

There are several online forex brokers in the world these days. Over the last decade, the popularity of online forex trading has grown exponentially due to the services provided by these brokers.

For example, a Nigerian trader just needs to open an account with a reputable forex broker such as HotForex or FXTM. To open an account, they need to complete certain KYC formalities and provide a deposit amount. Once the account is registered, the trader can download the trading platform and start trading.

Chapter #2

Basic Forex Terminology

There are certain basic terms that a forex trader needs to understand.

Currency pair: A currency pair denotes the two currencies you will be trading. One currency will be bought or sold and the other currency will be exchanged in return. For example, NGN/USD is a currency pair that denotes the pair of Nigerian Naira and the American Dollar.

When trading the NGN/USD you will be exchanging the USD to buy and sell NGN. All forex trading is done via a currency pair.

In this currency pair, the NGN is known as the base currency and the USD is known as the quote currency. The exchange rate of NGN/USD denotes how much of the quote currency you will need in order to trade one unit of the base currency.

There are three types of currency pairs – major, minor, and exotic. Major pairs are the most traded pairs in the world. Exotic pairs are the least traded pairs. EUR/USD is the most traded currency pair in the world

You should always try to trade major currency pairs since these are more predictable, have tighter spreads, and have the highest trading volume.

Currency pair

Pips: A pip is the smallest movement that the price of a currency can make. Pip is generally the fourth decimal movement of price in currency pairs. For USD-related currency pairs, the value of a pip is $0.0001. The spread that you will be charged for trading a currency pair is denoted in pips.

Leverage: Leverage is the ratio between the amount of money that you need to invest and the amount of exposure that you can gain in a trade. For example, the leverage offered by a forex broker can be 1:500.

A 1:500 leverage means that you need to provide $1 in order to trade $500 worth of currency. The higher the leverage, the larger the trade that you can make with a given amount of money.

Leverage increases the potential profit you can make through your trades since you only need a fraction of the money to be able to enter a sizeable trade. However, this also increases the amount of risk that you face with your trades. `

Bid Price: The bid price is the highest price that a purchaser is willing to pay for a security. In forex, the bid price refers to the amount of base currency needed to purchase the quote currency.

Ask Price: The ask price is the lowest amount that a seller is willing to pay to sell a security. In forex, the ask price refers to the amount of quote currency that you will need to sell in order to get one unit of base currency.

Spread: The spread is essentially a fee levied by a forex broker. It is denoted as the difference between the bid price and the ask price. The difference between the two is the fee that the broker is charging in order to provide brokerage services.

The spread is usually variable in nature. This means that the spread fluctuates in accordance with the liquidity and the timing of the trade.

The spread for trading each currency pair will be different. Usually, major currency pairs have tighter spreads than minor currency pairs. This means that trading major currency pairs is more affordable than trading other types of currency pairs.

For example, this below screenshot shows the spread for EUR/USD at XM. Their spread with Micro Account is 1.9 pips on their MetaTrader platform.

Forex Trading Spread

Lot sizes: Lot size is the amount of currency that you will be trading. There are three different main lot sizes in the forex market.

The three sizes are Standard, Mini, and Micro.

A Standard lot is equivalent to 100,000 units of the base currency.

A Mini lot is equivalent to 10,000 units of the base currency.

A Micro lot is equivalent to 1,000 units of the base currency.

Different brokers offer different types of lot sizes, however, the terminology for the three main types of lots has largely remained the same.

Chapter #3

How Can You Trade Forex in Nigeria?

Currency pairs can be traded online as CFDs or other derivative instruments. There are several brokers and banks that offer forex trading services. Such services can be either by acting as a market maker or by straight-through processing (STP). This depends on the business model of the forex broker or bank.

Most forex brokers online offer CFDs for forex trading.

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. HotForex Broker Regulatory Licenses

  4. 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.

  5. 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.
  6. Choose a username and password: Once your account is approved, you will receive a username and password or you can choose your own.
  7. Login to your account: Next, you can use your username and password to log in to your trading account through the broker’s website.
  8. 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.
  9. Practice trading: You can practice forex trading through a demo account. This is highly recommended for new traders.
  10. 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.

Chapter #4

Best Forex Trading Platforms for Nigerian Traders

Forex trading platforms have transformed the way people interact with the financial markets. These platforms enable traders to gain exposure to hundreds of different markets around the world.

There are several trading platforms available in the market these days. This makes choosing a trading platform difficult.

Choosing the wrong platform can cause you to suffer from slow trade execution, no educational material, no technical indicators or analysis, and so on.

Since each forex broker offers a certain set of trading platforms, the trading platform offered by a forex broker is an important consideration while choosing a forex broker as well.

Here is a breakdown of the factors that should be considered before selecting a trading platform and forex broker:

  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.

Chapter #5

Risks of Online Forex Trading

Online forex trading is a highly risky activity. Here are some of the types of risks that you will face:

  1. Risk of Loss/Ruin: Forex trading is inherently risky since it is easy to make a loss from your trades. You can even lose all the money you have deposited in your account or even more. Make sure that you only trade with a broker that offers negative balance protection so that you do not lose more money than you have in your trading account.
  2. Risk of Using High Leverage: Forex brokers offer high leverage to make trading with them more profitable. As explained above, leverage increases your exposure to the market manifold. This increases the profit or loss you will face from trade by many times. Hence, new traders should only use low leverage while trading.
  3. Risk of High Volatility: Forex market is highly volatile. This means that the exchange rate between currencies changes at a fast pace. Hence, it can be difficult to keep track of all the movements and you can quickly face a major loss.
  4. Unpredictable Market Movements: The financial markets are inherently unpredictable. It is impossible to reliably predict the price movement between currency pairs. This means that forex trading is a speculative activity and can lead to large losses.
  5. Online Scams and Fraudulent Activity: You should be careful of fake brokers, fake signal sellers, ponzi schemes, and fake robots. Scam brokers offer attractive bonuses and promotions in order to lure traders. Then they take the deposit money and disappear. To protect yourself from scams, you should only trade through top-tier licensed brokers that can be verified from the FCA, CySEC, ASIC, or the FSCA.

Forex Trading in Nigeria FAQs

Is Forex Trading legal in Nigeria?

Forex trading is currently unregulated in Nigeria but it is not illegal to trade forex. Since there are no locally regulated forex brokers in Nigeria, so for the safety of your funds you must only trade via Tier-1 & Tier-2 licensed forex brokers.

Is Forex Trading profitable?

Is Forex Trading Good for Beginners?

How do I Start Trading Forex?

How to trade Forex in Nigeria?

See Best Forex Brokers in Nigeria See Best Brokers