Forex trading is one of the fastest-thriving trading types currently. Forex trading entails traders buying and selling global currencies and making a profit depending on the depreciation and appreciation of these financial assets. Today, Nigeria is at the forefront of forex trading. It is chiefly because Nigeria’s economy is performing well and evolving quickly. It has attracted the attention of foreign investors and large-sized organizations worldwide to invest in the Nigeria forex trading market and gain immense profit. Another beauty of investing in the Nigerian market is its location in most urban cities in Africa and Asia.
Another salient factor that makes the Nigerian market especially attractive to foreign investors is that, unlike many other countries, Nigeria has its own forex market. Nigeria is the best option for worldwide investors, as they can trade without concern.
Regulatory Challenges in Nigeria
In Nigeria, there is no separate regulatory framework for forex trading. The Nigerian Securities and Exchange Commission (SEC) issued a notice in June 2013 that new rules apply to forex transactions; however, the decree does not yet exist in any law. The country has no set forex trading regulations or standards. Market participants are expected to use other currencies like US Dollars or British Pounds instead of the Naira when operating in foreign exchange markets.
Forex trading is a risk management tool for global trade and investments. It involves international retail investors and institutional investors in foreign exchange markets. Forex is a market involving high financial risks, thus choosing the best forex broker in Nigeria that is regulated is a must.
However, the Nigerian authorities still not adopting any proper regulatory framework for Forex trading, almost every market participant and are already beginning to show signs of concern. They have started looking for other avenues to trade in foreign exchange.
Addressing the Negative Effects of Regulatory Policies on Forex Traders
Although the Nigerian economy has been performing very well, it has several economic challenges and concerns. Forex traders cannot trade freely because the Bank of Nigeria (BoN) has implemented many regulatory policies.
One way to address the negative effects of regulatory policies on forex traders in Nigeria is to have regular meetings with BoN, where regulators sit with individual traders and listen to their views. It will make introducing new rules and regulations into the forex trading sector more open since BoN can now know what its constituents want or do not want. It will also ensure that all stakeholders are on board with any major changes.
It can also effectively address the challenge if the BoN starts communicating with its components using state-of-the-art technology, for example, email. It can also be used to solve issues relating to regulatory policies that affect traders in Nigeria, such as when traders have to face possible legal actions for breaking certain rules.
The most important way of addressing the negative effects of regulatory policies on forex traders in Nigeria is the BoN coming under public scrutiny. There is no way that BoN can develop better and form more flexible policies for trading if it does not have citizens looking out for its interests. The lack of transparency in financial sector policy-making processes and little accountability has allowed BoN to dispense with the interest and welfare of individual traders in favor of corporate entities such as banks.
Economic Challenges for Traders
Analysis of Economic Factors That Impact Forex Trading in Nigeria
If you are Nigerian and want to engage in forex trading, it is important to analyze the various factors impacting Nigeria’s economy is important. Below we discuss three key factors:
1. The Naira is also known as the Nigerian Guilder, and it was once part of the British dollar-naira exchange rate system, where one USD was equivalent to 6.6 NGN. According to an article published by BusinessInsider on June 19, 2015, today it has an exchange rate of around 80:100 US dollars.
2. To enhance the odds of your success in forex trading, you should have good knowledge of the exchange rate while trading a specific currency. In general, it is good to buy or sell your Naira to the currencies of other countries if the exchange rate goes up in the future. Meanwhile, consider the value of your currency in the country to ensure maximum profits.
3. Forex exchange rates in Nigeria, you can trade Naira to other currencies on online forex platforms, such as ForexEra, Iq Option, and XM Broker. Check the specific platform of your choice and learn how the various currencies are traded to stay ahead of your forex trading competition.
Impact of Inflation on Forex Trading
Inflation occurs when people, factoring in the enhanced demand, are ready to pay more for products and services. However, inflation in Nigeria has hiked up the cost of living because of higher prices paid for consumer goods. The impact of inflation on forex trading in Nigeria is not limited to external factors. It also includes internal ones such as inflation expectations and consumption patterns that can be influenced by prevailing market conditions.
The innovative Nigerian currency, following the country’s economic concerns, has become a topic of a dispute regarding how it impinges on the market. The currency was released during huge inflation and the fast-evolving demand for foreign exchange. This observable fact urged traders to assume that by adopting Naira, there would be a significant development in trade, which would help eliminate macroeconomic pressures. The Naira’s introduction indicated a country in dire straits when it came to the economy. Suffice it to say many traders did not anticipate such inflation during this period. Therefore, traders and forex swap dealers could have underestimated the potential impact on forex trading in Nigeria.
Addressing the Challenge of Currency Devaluation and Its Effects on Forex Trading
One way to address the challenge of currency devaluation and its effects on forex trading in Nigeria is by seeking out less volatile pairs so that your earnings are not concentrated on the most volatile pair you trade with. If you can find a less volatile pair, you will also reduce the chances of suffering substantial losses as you limit your risk exposure.
Another idea is to maintain a larger balance of available funds. Whether you are investing or trading, large losses can be devastating to your motivation. If not addressed properly, it can often result in further losses. It would be wise to keep more funds available for hedging purposes which will help stabilize your trading account. When you suffer a loss in one trade, the loss is offset by another investment/profit since a larger amount will represent your overall profits. It will allow for more conservative techniques.
Technological Challenges
Technological Infrastructure in Nigeria and Its Impact on Forex Trading
The telecommunications sector is one of the largest sectors within Nigeria’s economy. This growth is driven by heavy investment in infrastructure such as fiber optic and mobile networks, an increase in demand for data services like SMS and MMS, and continued growth in internet customers and web users.
All prominent money transfer service-providing companies have assumed a leading position in infrastructure development. They are paying special attention to upgrading the technology and bringing about a heightened level of innovation to meet their customers’ needs. Customers in Nigeria now can make transactions from anywhere in Nigeria; send money to almost any bank, shop, or person in any area all over Nigeria; and receive payments instantly via their mobile phones. Other major impacts of technological infrastructure on the Nigerian forex market have been the entry of new foreign exchange brands such as Remitly, Azimo, and WorldFirst into the market; and an increase in the number of Nigerians who are interested in buying or selling forex online.
It is estimated that technological infrastructure in Nigeria has already had a major impact on the sector. Still, the development can be on an even higher rise if local banks and the government back up the same.
Challenges Faced by Forex Traders in Accessing Reliable Internet Connectivity and Power Supply
Nigeria’s forex market conditions have been very unstable in recent years, primarily due to its inability to establish reliable internet service nationwide. It is always great to connect with your colleagues to share information and knowledge on the trading platform.
Power supply poses a huge challenge for forex traders as Nigeria undergoes an energy crisis intermittently. Based on their preferences, traders can either close up making the trade until the crisis is over or search for other viable options to carry on the business. It is quite understandable that if you are already carrying on your business successfully, you cannot incur a loss in production and revenue often, as you might have certain personal and familial liabilities to carry out. Suffice it to say any intermittence in the power supply will cause big issues for traders.
Internet connectivity remains one of the fundamental challenges that Nigeria’s forex market has to work out. The market is actually in dire need of reliable access to the internet all over the country to boost its technological capabilities. It will help traders stay on top of what is happening in the forex market worldwide. Consequently, it will also help them have better insights into which currency pair may be a good choice to trade and when they should terminate the trade.
Addressing the Challenge of Limited Access to Trading Platforms and Software
Nigeria has limited access to trading platforms and software, as only a few companies offer these services. Very few organizations offer innovation, training, education, and support for those interested in trading.
Below is a list of solutions to tackle this challenge when discussing it with your business partners.
- Make sure you have an innovative solution that caters to traders who don’t have access to the tools they need due to expenses or lack of Internet connections. Include the cost of licenses and monthly fees in your prices. Make sure all fees apply retroactively once established after registration.
- Ensure traders can access your platform when needed without being charged extra fees. Offer features that people will pay for (for example, the ability to trade off-site or use MT4 and MT5 platforms on the same account).
- Grow a user base by providing platforms such as webinars, seminars, educational Facebook pages, etc. It can help you build word of mouth and grow traffic. Provide accurate and fast customer service with 1:1 calls and/or chat support, so traders know what options you offer before visiting your website. Don’t force traders to buy flash drives or central processing units to set up their trading platform.
Security Challenges
Security Risks Associated with Forex Trading in Nigeria
Forex trading is considered one of the best ways to make money in Nigeria. Certain critical security risks are fraught in this type of trade in Nigeria.
Nigerian traders must know these risks when taking a forex trading business off in Nigeria. It includes security threats, the potential of an investor getting locked out of their account by a broker, etc. Plus, traders also have to face the risk of the broker not giving back the original deposit money even after a customer has closed their account. To ensure safety regarding transactions, read reviews posted on reputable sources online before depositing money into your trading account, and always choose a reliable forex broker in the market.
Analysis of the Impact of Cybercrime on Forex Trading
Many traders in Nigeria are turning to free forex trading software because of the constant threats of cybercrime. Cybercriminals often target
because they can make quick financial gains by exploiting weaknesses in a trader’s identity verification methods.
Nigerian traders have turned increasingly to free forex trading software that helps them manage risk and exposure to cybercrime threats. Instead of working with forex brokers, which often require traders to verify their identity through documentation and KYC (Know Your Client) processes, many traders have turned to free forex trading software.
Although many disgruntled traders in Nigeria also blame the explosion of forex scams on free forex trading software, several experts note that this is not the only reason for the development. Cybercriminals monitor these online platforms and actively try to steal sensitive information from those trading platforms, then sell the data for profit. It increases the risk for insiders and outsiders trying to trade in forex-positive countries where cybercrime is rife.
To protect themselves against cybercrime, Nigerian traders have begun using several protective measures. These include two-factor authentication and encryption of information on mobile devices, which effectively keep security risks at bay.
Addressing the Challenge of Fraud and Scams in the Forex Trading Industry
If you have been trading forex online for a long time, the odds are high for you to have encountered fraud and scams. As a result of having no specification regulations in the industry, these malicious activities are going up.
To address the challenge of fraud and scams in advance, forex traders can utilize some very effective ways once and for all. Firstly, make sure that you start trading currency in a central counterparty (CCP), as it will effectively help you thwart frauds and scams. In addition to providing you with peace of mind, doing so will offer you several types of commissions that come with it.
Next on the list is customer identification, which is also crucial for forex traders. It not only entails all forex traders to provide identification and ensures transparency between trading partners. What’s more, it cuts down the risk of some of the more illicit practices having come to pass.
Last, using over-the-counter (OTC) markets is worth considering. In a sale in OTC markets, you do not need to pin faith on your broker as a middleman – this matters substantially higher if you purchase many currencies. Plus, there are no spreads on either side of this market, which also cuts down risk.
Conclusion
Recap of the Challenges of Forex Trading in Nigeria
Every new trader starts with enthusiasm and motivation, but many challenges are associated with trading forex in Nigeria. The biggest challenge is the lack of knowledge about trading among Nigerians. It is mainly because most Nigerians are not educated about what forex is. That said, it becomes difficult to understand how this market operates.
However, being aware of such matters is important for individuals to benefit from foreign exchange trading and make good profits from it. There are various ways in which you can go about educating yourself and making greater progress in this business venture, like reading articles online or subscribing to newsfeeds on newsletters concerning these types of markets and investments.
Potential Solutions and Recommendations for Addressing These Challenges
Novice traders new to the world of forex must get in touch with experienced forex traders and conduct surveys with them. In this way, they will gain insight into the various potential challenges, solutions, and recommendations to deal with them effectively.
One of the most potential solutions worth considering includes imparting basic knowledge or training to the new forex traders about the forex market and conducting surveys from individuals with sound knowledge about how to trade in forex markets effectively. It will help all potential entrants in forex trading get rid of any doubt or paranoid fear before jumping into it eventually.
As seen in this case study, the lack of information regarding forex puts individuals at financial risk more than any other asset. One can use various ways to educate themselves on Forex trading to avoid being sent into financial ruin by this market.