How to Trade Forex in Nigeria

How to trade Forex in Nigeria

Choose your broker

👉 In the past, a broker was someone you would have contacted telephonically to purchase or sell currencies. However, now you can engage with a broker through a trading platform or trading software, thanks to the advancement of the Internet and software.

👉 There are plenty of online forex brokers vying for your business if you are a trader in the foreign exchange market. If you go to any financial news website, you will be inundated with forex broker ads.

👉 To help you separate the several types of brokers and to choose the right one, we have provided a guideline in this article.

Verify your broker’s reputation

👉 The purpose of forex brokers is to make it simpler for you to interact with banks that purchase and sell currencies. They are bound by a set of regulations and are obligated to follow certain procedures.

👉 For many years, however, the currency market has remained unregulated because of its decentralization.

👉 Even though it has vastly improved in recent years, you may still come across some shady forex brokers. Check to determine whether a broker is regulated before working with them.

👉 This information will be available on the websites of regulated brokers, and you can take the license number that the broker provides and check it according to the market regulator’s register.

👉 While the Central Bank of Nigeria (CBN) does not currently regulate the forex market or brokers that operate within it, you can rely on some of the following regulations to indicate a trustworthy forex broker:

➡️ The Financial Conduct Authority (FCA) in the UK

➡️ The Financial Sector Conduct Authority (FSCA) in South Africa

➡️ The Australian Securities and Investments Commission (ASIC) in Australia

➡️ The Cyprus Securities and Exchange Commission (CySEC) in Cyprus, and several others.

Opening an account with a broker

👉 The procedure of creating an account with a forex broker is like that of opening an account with a traditional financial institution.

👉 It may take a few days to finish the operation since it requires the completion of documents as well as activities such as the verification of identity, and it may take that long because of the complexity of the method.

👉 Demo accounts are offered by forex brokers, and all you need to do to open one is supplying some basic information about yourself. If you are interested in trying your hand at trading, this might be a good opportunity.

👉 Until you feel confident enough to start trading with real money, you can simply set up a demo or practice account and put your trading skills to the test utilizing such accounts.

Learn the basics of how forex trading works

👉 For many investors, forex is an unexplored and very intimidating sector. News that influences the price of a stock might have a completely different impact on the price of a currency.

👉 In addition, when a prospective investor joins the foreign exchange market for the first time, it is typically unpleasant terrain because of the need to know how to price currencies and invest in them within a relative context.

👉 Many brokers have built up sections devoted to teaching and research to assist traders to stay up to speed and educated daily, to combat the lack of information that many traders have owing to the peculiarity of the forex market.

Familiarize yourself with the balances on your account

👉 When you are working with a forex broker and trading, you will see two balances on your account. Your real balance, excluding open deals, is one balance.

👉 Your other balance is the amount of money you would have if you closed all your deals, and lastly, your “net balance” is the second balance.

Understanding the Bid-Ask Spread

👉 When you place a forex transaction with a broker, they send it to the market on your behalf. They give you a price for the currency pair that is more than the price they can earn in the process.

👉 For example, you will see USD/NGN 414.580/415.580, where the first figure is what the broker will offer you if you want to sell the currency pair and the second number is what the broker will charge you if you want to purchase it.

👉 The broker’s commission is the difference between these spreads, and in the example, the difference is 1 pip. In addition, traders must remember that depending on the supply and demand, the gap may increase or decrease when the broker charges a variable or floating spread.

👉 The difference between the bid and ask price is referred to as “collecting the spread.” From the trader’s perspective, the spread or fee is usually apparent in trading.

👉 However, bear in mind that the beauty of the spread from the broker’s perspective is that it is calculated based on your leveraged trade size rather than your account balance size.

Learn what leverage means and how to use it safely

👉 Every account comes with the opportunity to apply forex leverage, which ranges from 1:2 and even as high as 1:3000. For example, a leverage of 1:10 implies you will have $10 to trade for every $1 in your account.

👉 Leverage is both beneficial and dangerous since it allows you to achieve exponential gains while also exposing you to growing losses.

👉 Forex brokers are required by law to disclose this, which they usually do in the small print. New traders are prone to become too enthusiastic and lose their funds rapidly if they enter the market too soon.

Understanding Position Sizes

👉 In the Forex market, a normal lot is a 100,000 contract (in the base currency). Thus, when a Nigerian trader trades one lot on a standard account, they are making a ₦100,000 deal.

👉 Many investors would be unable to afford such a deal without the use of leverage. A trader with leverage of 1:100 might conduct the identical one lot (₦100,000) deal with ₦1,000 in margin.

👉 Mini lots are available from several retail Forex brokers. Mini lots are one-tenth of a typical lot, allowing traders to trade one-tenth of a standard lot.

👉 Trading a mini lot is a term used to describe trading in this size range and contracts for mini lots start at 10,000 units of the base currency. Thus, a 10,000 Naira transaction would be a single mini lot trade.

👉 Subsequently, when Nigerians are trading with a leverage of 1:100, 100 Naria in margin controls a 10,000 NGN contract.

Select a Currency Pair

👉 When you trade forex, you are swapping one currency’s value for another. In other words, you will always purchase one currency while selling another. Therefore currencies are referred to as forex pairs or currency pairs.

👉 Because foreign currencies are quoted in terms of the value of one currency relative to another, a Forex currency pair is made up of an acronym for both currencies separated by a slash ‘/’. Most beginner traders will begin by trading the most widely available major currency pairs, such as:

➡️ EUR/USD

➡️ GBP/USD

➡️ USD/JPY

➡️ USD/CHF

➡️ USD/CAD

➡️ AUD/USD

Carry out market analysis

👉 The cornerstone of your trading attempts must relate to in-depth research and thorough market analysis. If you fail to do this, you will be trading on emotions, which is very detrimental and will lead to losses.

👉 When you initially begin your research, you will come across a plethora of forex resources, which might be daunting. However, when you explore a certain currency pair, you will come across helpful materials that stick out.

👉 Regularly checking current and historical charts, being abreast of the news for economic developments, monitoring various indicators, and engaging in other forms of technical and fundamental study are all important things to do.

How to mitigate your risk in the Forex Market

👉 To trade effectively, you must have a thorough understanding of the dangers involved. Each trader will take a different approach to the market, emphasizing the notion that there is no right or wrong method to trade the market.

👉 Instead, each trader must choose the level of risk that they are willing to accept. All Nigerians must first determine what type of trader they are before they start trading.

➡️ Do you like to be in the market during moments of volatility or are you a methodical trader?

➡️ Do you want to be continually engaged or do you want to smooth out the short-term noise so you can focus on the long-term gains?

👉 The risk of an investment’s real return being different than anticipated is defined as “the unpredictability of returns from an investment or the likelihood that an investment’s actual return will be different than expected.”

👉 There is a chance you will lose part or all your initial investment. It is calculated using a given investment’s historical or average returns. The greater the volatility of an investment, for instance, price or interest fluctuation, the higher the risk.’

👉 Forex is classified as extremely dangerous because of the daily price volatility. In addition, the leverage levels that are available in the off-exchange retail forex market relate to financial products such as equities.

👉 Because Nigerian investors are often wary of taking on more risk, assets with higher inherent risk must provide higher projected returns to justify taking on more risk.

👉 Others argue that more risk entails a larger chance of big rewards or greater danger of loss. Bigger potential for return, on the other hand, does not inevitably imply a higher level of risk.

👉 The risk/reward balance is sometimes referred to as the “iron stomach test.” Any Nigerian trader’s most critical choice is determining how much risk you can handle while still being able to walk away from your computer and get a good night’s sleep while having long-term deals open.

👉 A Nigerian trader’s risk/return ratio is the trade-off between the lowest possible risk and the greatest potential reward.

👉 Nigerians must remember that low levels of uncertainty (minimal risk) correspond to low potential rewards, whereas elevated levels of uncertainty (substantial risk) correspond to large potential returns.

👉 Risk and probability are at the heart of trading. Understanding the inner workings of your Forex trading strategy(s) and placing suitable entry and exit orders can help you reduce your risk while increasing your profit potential.

👉 Diversification is universally acknowledged as the optimal investment portfolio strategy. To be diversified, Nigerian traders must master the usage of several trading methods and numerous currency pairings to provide an equal return across the board.

👉 Certain trading systems claim an 80% success rate in particular market situations. However, a full-time Nigerian trader must use more than just one technique, since there are often extended periods when the trading criteria are not satisfied, which may span from a few days to many months.

👉 Diversifying your investments is not among the most often discussed investing issues. Many individuals feel that diversification dilutes trading earnings.

👉 Diversity is the most crucial factor in achieving long-term financial objectives while limiting risk, according to most investing specialists. However, diversification does not guarantee against loss.

👉 However, Nigerian traders must keep in mind that no amount of diversification can eliminate risk.