Forex trading, particularly in countries such as Nigeria, was greatly unsubstantial during the early 19th centuries due to Forex trading being viewed as suitable for large conglomerates, financial institutions, and other larger entities.

But luckily, over the years, Forex trading has become something that invites and facilitates anyone, and everyone from right around the world as technology has made it possible for it to become a more accessible, part time or fulltime activity.

The Forex Market is, globally, one of the largest financial markets, and this is no different when taking Nigeria into consideration, with billions of Naira that is exchanged on any given day amongst thousands of Nigerians.

Six of the most popular currencies being exchanged in Nigeria, based on sheer exchange transaction volume, include:

  • The US Dollar – USD 
  • The Euro – EUR
  • The British Pound – GBP
  • The Canadian Dollar – CAD
  • The Ghanaian Cedi – GHS, and
  • The South African Rand – ZAR

Understanding Forex Trading

Forex Trading is done over-the-counter, or OTC, across thousands of networks widespread across the globe between buyers and sellers of currencies. The exchange of these currencies occurs through the Forex Market, with transactions worth around $5 trillion executed daily.

You might like: 17 Best Forex Broker Platforms for Nigerians 

The Forex Market is the most volatile and liquid market as it hosts a variety of participants that are constantly exchanging currencies. The market is open 24 hours a day, 5 days a week and despite different time zones, trading can occur at any given time, from anywhere.

Before Nigerian traders can participate in Forex Trading, there are a few steps to take before executing that first trade. The first is a basic understanding of the common terms that are used in Forex Trading, these are:

  • Currency pair – there are two currencies in a currency pair where the first is the base currency and the second is the counter-currency or the quoted currency.
  • Exchange rate – this is the price of the base currency which is expressed in terms of the counter- or quoted currency.
  • Bid and/or Ask Price – the bid price is what buyers of the currency pair are willing to pay while the ask price is the quoted price at which sellers are willing to sell the currency pair.
  • Spread – this is the difference between the bid and ask price, and it is the transaction cost for the trade which is always indicated in pips.
  • Pip – this is the smallest increment with which the exchange rate can either move up or down.
  • Going long and going short – going long means buying while going short means selling.
  • Leverage – a tool that traders can use to open larger positions despite their initial deposits, this is normally expressed as a ratio, for instance, 1:30. Leverage of 1:30 allows the trader to open positions thirty times that of the initial deposit.
  • Margin – this is the amount that the broker allocates as collateral for a leveraged trade.
  • Lot Size – this is the position size that the trader takes on the market that will determine the size of profits as well as losses.

How can Nigerians start trading Forex?

Developing a trading plan

After understanding some of the basic terms, Nigerian traders will need to develop a trading plan that represents a guideline according to which they will trade, keeping certain factors in mind. These factors include:

  • The trader’s financial situation and their trading objectives. Trader’s need to evaluate finances so that they can determine how much they have to invest toward trading and evaluate how much they can afford to lose.
  • An evaluation on the traders risk profile, exposure to risk, willingness to be exposed to risk and to what extent they can afford to be exposed to risks.
  • The trader’s level of experience, skills, and knowledge of Forex Trading to determine what education they will need to improve such.
  • The time that the trader can dedicate towards trading, whether they can do it fulltime or only part time as this will be important to determine what trading strategies will suit the trader.
  • Keeping records of trading activities in a trading journal so that mistakes can be noted along with strategies that led to profits and losses. The purpose of this is to improve trading strategies and trading decisions made.

Choosing the right broker

There are numerous brokers that cater for a variety of traders depending on trading styles, trading needs, preferences, and several other factors. But despite this, there are several factors to consider when evaluating brokers, these are:

  • Licensing and regulation of the broker
  • Trading and non-trading fees
  • Amount and variety of tradable financial instruments
  • Trading platforms offered
  • Education and research tools and resources provided
  • Deposits and withdrawals – payment methods, fees, and processing times
  • Customer Service quality and availability

Choosing the right broker may be tedious as Nigerian traders will have to compare several, narrowing their list down to a few followed by in-depth comparison.

By opening demo accounts with these brokers to explore their offering in a risk free, mimicked live environment, Nigerian traders can more clearly see what the broker’s trading conditions are and whether they will suit the Nigerian trader’s needs and preferences.

Evaluating trading platforms

Brokers facilitate the execution of trades by offering trading platforms that are either provided by third-parties, or by the broker itself through the provision of a proprietary in-house trading platform.

When evaluating trading platforms, Nigerian traders need to consider the following factors:

  • The platform should not be chosen purely based on the fact that various other traders use it, despite this being a good sign, Nigerian traders need to evaluate whether the trading platform will cater for their own unique trading needs.
  • The trading platform should have a user-friendly interface that allows for convenient and easy navigation for daily use. It should be easy for Nigerian traders to familiarise themselves with the intricacies of the trading platform without effort.
  • Basic functions and added features – Nigerian traders should evaluate the basic functions presented on the platform and overview the additional features that can be used to refine and improve their trading skills and trading strategies.
  • Stable performance – Nigerian traders should ensure that it is a stable platform that is not prone to issues and crashes that may compromise and complicate their trading activities.
  • There should be ample support – Should there be issues or queries form traders, there needs to be an accessible support team that can respond with promptness to attend to issues and queries.

Decide on a trading strategy

Trading activities cannot be conducted in a random and chaotic manner as this will lead to inconsistency and undisciplined trading that may lead to the incurrence of substantial losses.

Nigerian traders need to research and evaluate different trading strategies which they can apply to their trading activities. There are various strategies and it will depend on the trader’s objectives, limitations, and several other factors, to find the perfect, tailored strategy.

Instead of jumping between various strategies, it is imperative that Nigerian traders identify a trading strategy and spend time getting to know it back to front, and eventually adapting it by using technical indicators and other tools to suit their needs even more proficiently

Final Thoughts

Forex Trading can be quite daunting and intimidating to Nigerian traders who have never been exposed to such a vast, intricate, and liquid trading environment.

But with the extensive and comprehensive educational tools, guides, tutorials, videos, and other sources available on the internet, and provided by brokers, beginner Nigerians can be well on their way to making great profits through Forex Trading.

It is crucial that beginner Nigerian traders follow the steps from one phase to the next as it will ensure a solid foundation and aid them in the journey to becoming more advanced traders. Forex Trading is a skill that has to be learnt, adapted, and improved over time.

Partner Author

Get the best African tech newsletters in your inbox