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.