Forex Trading in Nigeria – The Basics
Here are the basics you need to know in relation to Forex trading in Nigeria. To better appreciate how trading in foreign exchange works, let us use a simple example. If you purchased 1,000 US dollars in March 2017 for 315 Nigerian Nairas for a dollar, you would have paid 315 Nairas.
Assuming you held on to your dollars for 3 months and decided to sell them off in June 2017 at 321 Nairas per US dollar. The sale would have fetched you 321,000 Nairas. With an initial investment of 315,000 Nairas, you would have earned 6,000 Nairas after 3 months since your purchase price was cheaper than the price you sold your dollars for.
You earn a profit by trading foreign currencies this way. In the example used above, you can easily compute that in order to make a profit of 2,000 Nairas a month for three months, you need to invest 1,000 USD. You may think that it requires a lot of money and it takes too much time. There are easy ways to address these problems, however, so do not worry.
The Role of Forex Brokers and Leverage
A forex broker is used to trade forex. To define simply, a broker is a company that specializing in creating the ideal trading environment for their clients. These way, investors can take advantage of the fluctuations in currency prices immediately.
When you open an account with a forex brokerage firm, you will be able to start trading on international foreign exchange markets in large sums of money and earn profits much more quickly. You may ask how that can be possible. Simple – by using leverage.
Your broker may offer leverage to allow you to trade large amounts of money without having to shell out as much money on your own.
For example, if your broker provides a leverage of 1:100, you can trade 100 USD for every dollar you deposit into your own trading account. If you have a deposit 150 USD on your account, with the leverage, you can trade as much as 15,000 US dollars.
Now, why will your broker allow this? – The broker is aware of the very slow movement in the currency markets. It will take a lot of money to make significant gains within short time intervals.
Let us use another example why brokers are predisposed to giving leverage. For this example. Let us use the EUR/USD currency pair, the most traded among all pairs the world over.
As of the time this post is being written the prevailing EUR/USD exchange rate is 1.1000. This means a EURO costs 1.100 USD. If you are buying 1,000 Euros, you would have to pay 11,000 USD.
If you purchase 1000 Euros at the above-given rate from a particular broker, and you decide to sell the Euros at 1.1060, there will be a difference of 6 pips.
This means there was a slight movement of 0.54%, which often happens in a short two-day period. You would net 60 USD from the trade. Not that for the EUR/USD pair, one pip is equal to a dollar for every 10,000 dollars traded. The pip is the 4th decimal in the currency rate.
Because you earned a profit of $6 in 2 days, your broker is aware that his risk is also limited to a 2-day period. Even if he loses money, he won’t lose a lot.
If the trade had gone on the opposite direction, he would have lost only $6. This is the reason your broker would allow you to buy as much as 10,000 Euros for a 100 dollar deposit. In the worst case scenario, and the loss reaches $100, the account will automatically be closed by the broker and stop the loss to the amount of the deposit.
In short, brokers allow leverage to help individual traders amass larger profits with high risks but limited to short periods of times. This simply means being able to trade more. The more money you trade, the more beneficial it will be for the broker due to the spread, or the difference between the buying and selling price of every currency pair.
The most interesting part is that the spreads are quite low because they are driven by the fierce competition among forex trading brokers that were forced to bring down the spreads to make them more lucrative to prospective clients. Normally, spread for the EUR/USD pair is 3 pips. This means the broker will charge only 3 dollars for each trade that is worth 10,000 Euros.
To give an example, if a trader earns $100 from trading 10,000 Euros, it means there was a 103 point movement in the market. The broker collects only $3 from the 3-pip difference between buy and sell prices.
Forex Trading Brokers in Nigeria
The sad news is that, currently, no reliable brokers are based in Nigeria. The most viable option for Nigerian traders to enjoy potential profits from the foreign exchange markets is to utilize the services of an offshore broker, or a foreign country-based forex broker.
Good thing there are numerous international brokers that can cater to the demands of Nigerian traders. These brokers will let you conveniently deposit and withdraw funds.
In as quickly as 5 minutes, you can open an online account and deposit funds using your debit card or other payment options including Neteller, Skrill, Cash U, Webmoney, and Paysafecard, among others. On the other hand, if you intend to make bigger withdrawals or deposits, you can arrange for bank transfers.
I have browsed through the biggest forex brokers in the whole world, and I have shortlisted the ones that are most accommodating to Nigerians. These brokers also offer the most favorable trading conditions and the most convenient withdrawal and deposit options.
This is the best Forex broker for Nigerians:
Top Forex Broker for Nigeria: AvaTrade
Each one of these brokers offers mobile trading, high leverage, minimal deposits, and highly advanced trading platforms. The brokers also offer loads of educational materials to help you learn more about forex trading and making money online.
Read more: Tips for Selecting a Forex Broker