A recent report released by Dailyfx (a forex research firm) in 2020, stated that Nigeria’s forex traders trade currency positions worth as much as $1.25 million on average, daily.
Forex trading happens around the globe and is open 24 hours a day for 5 1/2 days a week. It means you can trade forex whenever you want, which offers you time flexibility. You do not have to wait for an opening bell or struggle to run your order before a market daily close. So, you have the option of either being aggressive or passive, as you choose to trade at your desired schedule.
Some experts interviewed by Nairametrics broke down the reasons why forex trading is becoming popular in Nigeria.
Mr Abdul-Rasheed Oshoma Momoh, Head, Capital Market in TRW Stockbrokers Ltd, a veteran in forex trading spoke with Nairametrics on the need for every discerning investor to diversify by asset classes and sectors According to him, Forex trading is a reliable option. He said:
“Forex trading is among the most rewarding asset classes for traders and investors. Although Forex has a reputation of being for short-term high-risk speculators, there are trading styles suitable for both short-term and long-term traders.
“Forex trading allows you to earn a steady income from various kinds of currency trades or from investing in bonds, dividend stocks, and other income vehicles.”
Forex trading offers one of the highest amounts of leverage when compared to other financial markets. Small trading accounts offer higher leverage because of small deposit requirements,
Adegbotolu Kehinde Erastus, a professional currency trader with over a decade’s experience of trading currencies buttressed the advantage that leverage brings in the forex market. He said:
“Forex trading gives you access to currencies and commodities which you can trade with high leverage, unlike the stock market.
“This means that you can actually trade with bigger sums of money than the capital invested. Note that this varies across various brokers.
“Over leveraging increases your profit; however, any move against you will result in bigger losses. With proper risk management, the Forex market is very lucrative.”
Nairametrics research dug deep to find out why those who embark on forex trading do so and we came up with the following;
The most liquid financial market has always been the forex market. With trillions of dollars exchanged daily, you do not have to worry if your trade will be processed when trading any of the major currencies which include the American dollar, Euro or British pound sterling.
In recent years, the forex trading market has surged to one of its highest-ever levels, with $6.6 trillion transactions a day averagely in 2019, according to the Bank for International Settlements.
Ayodeji Edordu a Global Market Analyst at Alphagold Capital told Nairametrics how forex trading builds an individual’s personal character. He said:
“As a forex trader, you are in control of your finances. It is also an avenue to earn extra income. With a ‘small’ amount invested, a trader can earn some good income while trading. Trading also exposes one to the financial markets and current events.
“It also teaches a trader to be disciplined. A lot of opportunities abound as the market is very liquid with a lot of volumes.
“With a click you can buy and sell as you please since there will usually be someone on the other end willing to trade back.”
Ability to buy or sell anytime
In forex trading, you trade currencies in pairs; when you are bearish (short) on one currency, you are bullish (long) on the other. For example, if you are bearish on USD/NGN, you go short by buying naira and selling dollars at the same time.
If you are bullish (long), you can go long by selling the naira and buying American dollars. This is different from equities markets where you are only allowed to short-sell during an uptick. This is a great advantage for forex, trading as you can profit from both bullish (upward) and bearish (downward) trends anytime.
Funmilola Olajide, a professional forex trader and tutor, spoke to Nairametrics in a phone chat interview and explained the flexibility that forex trading brings. According to her;
“Even if the market is rising or falling, you can trade, and some forex trading strategies even depend on the latter.
“You can find opportunities in any market condition and you can trade when you believe the price of a currency pair is going up or when you anticipate it going down. Some traders even thrive on high volatility periods.
“Although carrying more risk, these sudden price changes can be helpful if timed right. Whether you are following longer market trends or trading day to day movements, there is plenty of trading opportunity to be found.”
Low transaction costs
Currency transactions are completed using the over the counter method, with currency traders directly dealing with market makers and market participants like banks.
As such, there are no exchanged fees or clearing charges that you experience when trading stocks, ETFs, or bonds. With forex trading, such charges do not exist. Typically, forex market makers will not charge commissions on currency trades you process through their currency trading platforms.
Forex trading in Nigeria is still not regulated, even though the current market is one of the most active across Nigeria.
Trading the forex market, unlike stock trading, does not attract any charge. Nobody has regulatory oversight on it, and the current pricing is carried out based on the supply and demand of currency traders. This is unlike Nigeria’s stock market, where local stocks can’t go up or down beyond 10% of its present value for that day.
How to invest for retirement
Planning for retirement means planning to reduce obligation in the future by investing today.
“If you plan to retire in five years what should you be doing today?” That’s a question I got last week, and talking with the client, a lot came up which I have decided to share.
First off, What is retirement?
Nigeria’s public service has an official retirement age of 60 or thirty-five years of unbroken active working service, but in financial planning, retirement is a financial, not a chronological event. Retirement can occur when your passive income can meet your non-discretionary expenses.
You start to plan for retirement the day you start to earn an income. Your retirement plan will centre on how to generate passive income and reduce expenses. In Financial Planning, Four distinct stages are usually described in a so-called Lifecycle Chart. These are the Accumulation, Consolidation, Spending, and Gifting stages. Chart 1. Financial LifeCycle seeks to segment investing priorities, recommended asset allocation, and risk profile in a chronological timeline as the person gets older. I will take each of these stages and explain how they are linked to your retirement plan.
Chart: Financial Life Cycle
Early years: Use Your Time and Make Money, (Accumulate)
The first stage is called the Accumulation stage. Imagine a 22-year-old who has just graduated and is a management trainee. He typically has a low credit score and assets and income are also substantially lower. What he has in abundance is time. So it’s important to deploy his time in the best way to make money. Hence in the accumulate stage, the goal is to generate cash flow either from a job, multiple jobs, working longer hours, saving, cutting unnecessary expenses, etc.
The key measure in the accumulation stage is the Savings Rate which is essentially how much of income earned or generated has not been spent. On average, the participants in the accumulation stage have fewer dependents and maintenance needs which should theoretically make it easier to save.
Mid Years Use Your Money To Buy Assets (Consolidation)
In the consolidation stage the focus shifts from saving to investing. At this stage, the income earned and credit scores have improved. This is when the talk of buying a home or starting a business takes concrete shape because, at this stage, those dreams can be funded. Hence capacity to take on debt is improved, and debt is used to invest in assets like a home. Remember debt is simply front-loaded consumption, which means we are taking our future income to invest today, intending to repay with future income generated from today investment.
The key measure in the consolidation stage is the Rate of Return which is essentially how much has been generated from the investments made.
Spending & Gifting Phase; Use Your Assets To Generate Cash Flow and Time (Spending and Gifting)
Why is it called the spending phase? Because that’s what the individual is doing, spending down accumulated investments. The spending will include buying annuities or perhaps relocating to another city, your dependant’s college needs, etc. At this stage, typically very few are still earning “new” income but are rather spending from the return of prior investments.
The key measure in the spending stage is the Withdrawal Rate which is essentially how much of investment can be withdrawn as cash annually to ensure we do not outlive our investments.
Retirement is All About Passive Income
Passive income, which is the income we are making from investing from the accumulation and consolidation stage is now sufficient to generate income and reduce expenses to meet our expenses in the spending/gifting stage.
To give an example, assume we took a mortgage to buy a house in the Consolidation Stage, in the Spending stage, we pay no rent, thus we save cash, which reduces our Non-Discretionary Expenses. In essence, retirement is planning to eliminate your future expenses to the point where you need less income when you retire.
What Should You Invest In Before Retirement Or In Retirement?
Our objective is simple, Income. In retirement, we invest solely to make income to meet our spending needs, Risk profile is also very low because there are fewer recovery options if your investments sink.
The retirement portfolio is an income-generating portfolio that will be overweight in fixed income products. First, determine what the risk-free rate is. In Nigeria, we can take the yield on a ten-year FGN bond as a guide, this means we can have a target of 10% as our huddle rate for the long term. Thus I will recommend an 80/20 portfolio with 80% going to Fixed Income consisting of long term bonds, REITs, and other top-grade commercial paper.
However what happens if we lock in our funds for 10 years at 10% and rates jump to 20%, meaning a loss to our portfolio. To avoid this risk we can create a bond ladder, where we break down the bulk sum and duration of our total bond investment outlay. Let us assume we have N10m in cash to invest, instead of one single lot investment of N10m, we split into 5 equal investments of N2m and place for 6, 7, 8, 9, and ten-year maturities. This means by the 5th year the first N2m will mature, if rates are higher, reinvest, if rates have fallen then reevaluate.
What about Equities
Yes, equities also pay a dividend. In buying equities, we must ensure we are only buying stocks that pay a dividend above our huddle rate of 10% which is the 10-year FGN bond rate. Which Nigerian stock meet that huddle rate?
- GT bank
- United cap
In closing, let us summarize. Retirement is not chronological age. The event occurs when our passive income pays our bills. Planning for retirement means planning to reduce obligation in the future by investing today. Investing in retirement is income-based with a huddle.
Steps to take to bag international scholarships
Here are the steps you should take if interested in pursuing international scholarships.
Studying abroad gives you exposure among many other things, and that is precisely why many Nigerians have been looking for ways to study abroad. However, not everybody is privileged with the resources to study overseas and this is where the international scholarship option comes in.
If you are interested in studying abroad and don’t have enough funds, you should consider applying for international scholarships. This article lists the steps you can take to bag international scholarships but before delving into that, here are some types of scholarships available to you as an international student:
- Location-based scholarships
- Course or program-based scholarships
- Sports-related scholarships
- Research-based scholarships
- University-funded scholarships
- Organization-funded scholarships
- Government-funded scholarships
Having discovered the types of international scholarships available to you, here are the steps you should take to bag any of these international scholarships.
Research: Research is vital if you don’t want to miss out on good opportunities or make mistakes during your application. Research scholarship opportunities available in your prospective college or location and be on the lookout for hidden scholarships.
Check your eligibility: Having done thorough research and discovered the available scholarship opportunities, check to see if you are eligible for them. Many international scholarships have their criteria and requirement, so you should confirm that you are the right fit first.
Get the required documents: After confirming your eligibility, you should get the necessary documents. If the scholarship requires you to write an exam, prepare for the exam, write a good statement of purpose and prepare all other documents.
Start your admission process: Some international scholarships require that you start your admission process and probably get the admission before starting your scholarship application.
Contact past scholarship winners: You might want to contact the previous scholarship winners to know what they did right and how you can learn from them.
Apply for the available scholarships: The last step is to apply to every available scholarship.
The best way to get funds for your undergraduate, postgraduate, or PhD pursuits abroad is by applying for international scholarships. If you do thorough research, you can find fully funded scholarships that won’t require you to pay any amount. One of the essential steps to getting an international scholarship as a Nigerian is staying abreast of current information and this will require you to network with others.
Nairametrics | Company Earnings
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- Tantalizers Plc reports a loss after tax of N422.05 million in FY 2020.
- NASD Plc announces admission of newly demutualized NGX shares.
- Lotus Halal Fixed Income announces dividend of N20 per unit for Q1 2021.
- Friesland Campina Wamco Nigeria Plc announces AGM, proposes dividend of N6.74 per share.
- ETI appoints Akin Dada as Group Executive, Corporate & Investment banking.