Are you a Nigerian who wants to learn how to trade forex? This post will walk you through the most important aspects of the world’s largest financial market.
What Is Forex Trading and How Does It Work?
When the term “Forex trading” is used, it refers to the purchase and sale of currencies.
The Forex market is mostly over-the-counter, and you trade currency pairs, or two currencies, as a Forex trader. EUR/USD, USD/JPY, GBP/USD, NGN/EUR, USD/CAD, and more currency pairs are examples. In the Forex market, the USD (United States Dollar) is the most widely traded currency.
Unlike conventional trading, when money (currency) is exchanged for goods/services, a currency is swapped for another currency in the Forex market. In fact, profit is gained when currencies appreciate or depreciate.
Depositing and Withdrawing
To trade on the Forex market, you must first fund your account. If you want to trade NGN/USD, for example, you must first deposit some Nigerian Naira (the base currency) into your account before you can trade for US Dollars (the quote currency).
Different deposit methods are available, and the one that is available to you will be determined by your broker. The following are a some of the most well-known:
- Cards (credit and debit)
- Wire transfers between banks
- E-wallets are electronic wallets (PayPal, Skrill, Neteller, Webmoney, etc)
The same is true for withdrawals. Profits can be withdrawn from your account in a variety of ways, but the most popular are bank withdrawals and e-wallets. Fortunately, several brokers accept cryptocurrency deposits and withdrawals, such as Bitcoin and Ethereum.
Nigerian Forex Trading Regulation
In comparison to Europe and America, there is less regulation for Forex trading in Africa. Forex trading is legal in Nigeria, as long as the trader or broker follows the industry’s rules and regulations. However, Forex trading in Nigeria is not tightly regulated. This could be due in part to the fact that it is still a relatively new phenomena that is gaining traction among citizens.
The Central Bank of Nigeria regulates forex trading in Nigeria, and brokers must meet specific criteria in order to trade on behalf of their clients. Furthermore, earnings from trading operations are taxed in the country and must be declared as such in order to prevent getting in trouble with the law.
Nigerian foreign currency brokerage firms have grown in number, with several being domiciled in the country. There are trading watchdogs out there, and you can check their websites to determine if the Nigerian forex trading brokerage firm you’re considering trading with is legitimate.
Just because a forex broker exists in Nigeria does not indicate they are legal or capable of trading for you in the market. With more and more brokerage firms opening in Nigeria each year, ensuring that they are legitimate and capable of trading is critical before entrusting your money to them.
Choosing a Broker
To begin forex trading, you must first choose a forex broker wisely. Here are some pointers to help you get started;
It is best to use a regulated forex broker for a stress-free forex trading experience. Unregulated brokers are involved in a large number of forex scams and fraud operations.
Forex trading entails the use of actual money. If the broker’s website is hacked, you could lose your money if their security is inadequate. Select Forex brokers that place a premium on security and user privacy.
Your account should be self-contained so that you can manage all trading operations. While some brokers handle trading operations on behalf of traders, an independent account allows you the freedom to react to every market movement.
- Analysis and Tools
Without competent trading tools and market research, you will not be able to thrive in the forex market. Examine the trading platforms provided by brokers, as well as their tools and market analysis. It’s also necessary to have real-time updates.
- Spreads and commissions
Commissions and trade spreads are how brokers make money. You must determine which spreads are most advantageous to your trading approach. Spreads are usually set by brokers and are either fixed or changeable. Fixed spreads for key currency pairs run from 1 to 5 pips, while variable spreads range from 0.2 to 0.8.
Positions in the Forex Market
In the Forex market, a trader’s trading position is the quantity of currency they own that allows them to track its value versus other currencies. Long and short positions are the two most common forex trading positions.
- Long Position
When you predict the value of the base currency to rise, you open a long position. For example, if you trade the currency pair NGN/USD, a long position means you keep the NGN and expect it to rise in value faster than the USD. That way, you’ll be able to sell it later and earn.
- Short Position
The price of the base currency is projected to fall after a period of time for a short position. If you trade the currency pair NGN/USD, for example, a short position allows you to deposit and exchange NGN for USD swiftly. You expect the USD to appreciate in value more than the NGN, so you can buy back the NGN you deposited and keep the profits.
Trading forex in Nigeria can be profitable if you use effective trading strategies. The information in this guide will assist you in getting started on your journey.
Forex trading, on the other hand, is not a get-rich-quick scheme. While you should be profit-driven, you have a 50/50 probability of winning or losing.
You can boost your winning odds by analyzing the market and establishing tactical trading techniques. Most importantly, you should know when to cease trading if circumstances are not going according to plan.