Forex in Nigeria
What is Forex?
Forex stands for Foreign Exchange Market. It is a financial market that allows traders to buy and sell foreign currencies. Forex is the biggest market globally and continues to grow rapidly. According to the Triennial Central Bank Survey, Forex reached an average turnover of $7.5 trillion per day in April 2022, up from $6.6 trillion three years earlier. Forex is not governed by a central authority and can be traded almost anywhere in the world 24 hours a day on weekdays.
Nigeria has the biggest population and the largest economy in Africa and is also reported to have the fastest-growing middle class. With the consumer boom in the country, Forex is becoming very popular among Nigerians, especially young and educated ones. As a result, it is estimated that Nigeria has the second-biggest Forex retail market in Africa, trailing only South Africa.
Is Forex legal and regulated in Nigeria?
Any resident of Nigeria can legally participate in the Forex market provided they are using their own funds. While Nigerian laws do not have special requirements for Forex traders, it is important to remember that any Nigerian resident should pay the appropriate tax according to the laws. That includes situations when the Forex broker is registered in another country and funds in the trader's account are kept offshore. Usually, Forex traders in Nigeria have to pay the 10% capital gains tax on all the gross profits they acquire. But taxes are a complex topic, and anyone who wants to trade on the Forex market in Nigeria should seek some advice from a tax professional to know exactly what the tax obligations are in their specific case.
As for regulations, the Nigerian Forex market is very poorly regulated. While brokers have to get a license, there is no regulatory authority in Nigeria that is concerned with Forex trading, unlike some other countries, including the United States. The Central Bank of Nigeria is the official institution that regulates financial markets, but it is mostly concerned with banks and other large institutions and pays little attention to online retail trading. The Securities and Exchange Commission is another regulatory body that is established to develop and regulate the capital market. But it warned back in 2018 that Nigeria does not have regulations for online retail Forex trading:
The public is hereby advised that online retail forex trading is currently unregulated and consequently may be subject to abuse.
There were reports about the creation of the Association of Online Forex Trading Agents in Nigeria a few years ago. But there has been no word from it since then, and it is even unclear whether the group still exists.
The lack of regulations can have some advantages for Nigerian Forex traders. For example, brokers are not limited to what they can offer to traders. Regulators in other countries can limit the leverage brokers are able to offer or ban trading of CFDs (contracts for differences). In Nigeria, brokers can freely offer CFD trading and provide leverage as high as 1:1000. Additionally, the lack of regulations can attract a large number of brokers to Nigeria, which can potentially result in a higher competition and better terms for traders.
But there are inherent dangers associated with the lack of regulation as was said in the warning message from the SEC mentioned earlier. Unregulated markets attract scammers and fraudsters, making such markets dangerous and unappealing to traders. That is why professional Forex traders advise choosing brokers that are regulated in some other countries that have official institutions concerned with regulating Forex markets.
Many experts talk about the importance of having a regulated Forex market in Nigeria. There is a chance that things will change in the coming years, and Nigeria will establish a regulatory authority that will make the Forex market safer for traders. But for now, the Forex market remains unregulated in Nigeria, and traders should be cautious when they are choosing a Forex broker to which they trust their money.
Problems Forex traders may face
While trading on the Forex market can be a very lucrative endeavor, it has its own dangers that prospective traders should be aware of. Here are some of the potential issues a new trader can face:
- Scammers and dishonest brokers — one of the biggest problems a Forex trader, especially an inexperienced one, can face. Try to find an established and reputable broker, preferably one that has a registration in a country with a regulated Forex market. You can find a list of recommended brokers at the end of this guide.
- Lack of knowledge and experience — another significant problem many new Forex traders experience. Learn as much as you can about Forex trading before you start participating in it yourself. Try trading on a demo account before risking real money on a live account. You will find more information on what a demo account is when we will discuss how to start trading on Forex.
- Losing all available money — Forex trading is a very risky business that has a high chance of failure. You should invest in Forex trading only the money you are ready to lose.
- Following strategies of other traders blindly — this involves listening to advice you find on the Internet without analyzing it, using robots and expert advisors without knowing how they work, and using strategies that you find online, in a book, etc. without understanding how and why they work. You need to understand what you are doing, otherwise, it is extremely likely that you will lose your money.
- Poor risk management — you need to understand what the risk of every trade you make is and whether the potential profit warrants that risk. You need to risk only a certain (preferably small) percentage of your overall capital on every trade and learn what is a stop-loss and how to use it to limit the risk.
- Overtrading — learn not only when to trade but also when not to trade. One important lesson every Forex trader needs to learn is that you should not trade just to trade. Trade only when you are fairly certain that market conditions are working in your favor. If you are in doubt, leave the market and wait for another opportunity. Also, set a profit objective and do not be too greedy.
- Not understanding the terms and rules of your broker — every broker has its own terms and rules that you need to learn before doing business with that broker. Learn what the fees and spreads are, what the minimum deposit is, whether the broker allows keeping overnight and over the weekend, if you can trade around important news, how and when you can withdraw your funds, what are the payment methods, etc.
How to start trading Forex in Nigeria
To start trading Forex, you need to follow the steps listed below:
- Ensure that you have a stable and fast Internet connection — to trade Forex you need an online connection. While in theory you can trade Forex regardless of the quality of your Internet connection, in practice you may encounter situations when you need to act fast. You do not want to pass a golden opportunity or to suffer losses because your Internet connection is slow or you lost connection.
- Learn about Forex — you need to learn basics at the very least before start trading. But to be a successful trader, you need to learn much more than basics. We have a lot of guides and other educational material for you to read.
- Find a good broker — you need to find a broker that has a good reputation and offers terms that are acceptable to you. Read terms and conditions on the broker's site. If some important details seem unclear or absent, that can be a reason to be suspicious of the broker. Read reviews online. Check whether the broker is registered with regulatory authorities in the countries where the Forex market is regulated. Or just see the list of good brokers at the end of this article and choose the one that looks the most appealing to you.
- Open an account with the broker of your choosing — go to the broker's site and open an account, providing all the information required.
- Download a trading platform — you need a software to trade on Forex. The most popular programs for trading are MetaTrader 4 and MetaTrader 5 but you need to check with your broker what platforms it offers.
- Choose your strategy — there is basically no chance of earning a profit if you do not have a solid trading strategy. You can find a plenty of strategies online (including our Strategies section) or you can devise it yourself. Remember: you need to understand the strategy before employing it!
- Test your skill on a demo account — do not risk real money immediately. Try trading on a demo account first. A demo account is an account which allows you to trade the same way as you would trade on a live account but it uses virtual money. That means you can learn trading and test strategies without risking your real money.
- Fund your live account — when you feel that you are ready for real trading, fund your live account with money. Usually, you do not need to have a large sum of money to start trading on Forex. But you need to check with your broker to know what its minimum deposit is. Remember to put only as much money as you are ready to lose!
- Start trading — try to be smart and careful but do not expect to win in 100% of cases. In fact, as an inexperienced trader, you have a high chance to not win at all. Do not despair! Try to analyze your mistakes and understand what went wrong. Modify your strategy accordingly or choose a new one. Do not forget that it can be very useful to talk to other traders, asking them advice and share ideas. There are plenty of places on the internet where Forex traders can communicate, such as our forum.
List of Forex brokers
Here is the list of Forex brokers available in Nigeria with a short description for each:
- Exness — a broker with a history of more than 10 years and decent reviews by traders. It offers good terms for traders, with a minimum account size of just $1 and a leverage of up to 1:2000. The broker is regulated in several countries, including the United Kingdom and South Africa. Exness offers a wide range of currencies to trade and provides plenty of payment methods. The broker uses the MetaTrader 4 and MetaTrader 5 trading platforms.
- FXOpen — has a long history, being founded back in 2003 and going online in 2005. The broker is rated excellent by many traders. It offers a leverage of up to 1:500 and a minimum account size of $1. The broker is regulated in several countries, including the United Kingdom and Australia. FXOpen offers a decent number of currency pairs and payment options. The broker offers several trading platforms: MetaTrader 4, MetaTrader 5, and TickTrader. But only MetaTrader 4 is available for all types of accounts.
- InstaForex — is present on the market for more than 10 years. Unfortunately, it is not rated well by most traders. The terms it offers to traders seem decent, with a minimum account size of $1 and a leverage of up to 1:1000. The choice of currency pairs is very good, and the range of payment methods is exceptionally big. The broker uses the MetaTrader 4 and MetaTrader 5 platforms. While InstaForex is regulated in a few countries, it is not licensed by any major regulator. Additionally, the offices of the broker are situated in the Russian Federation, which can make trading with it risky in light of the recent geopolitical events.
- LiteFinance (previously known as LiteForex) — a broker with almost a 20-year history. Alas, it does not have particularly good reviews from the majority of traders. The minimum account size is $50, which is not exceptionally big but noticeably bigger compared with other brokers listed here. The broker offers a good leverage of up to 1:500. It offers a reasonable number of currency pairs to trade. The number of payment options is impressive. LiteFinance is regulated in Cyprus but that refers only to its European branch. The broker uses the MetaTrader 4 trading platform, though MetaTrader 5 is available for one type of account.
If you want to share your opinion, observations, conclusions, or simply to ask questions regarding Forex in Nigeria, feel free to join a discussion on our forum.
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