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Currencies

Is Forex trading legal in Nigeria?

It is the biggest and most liquid market in the world

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Is Forex trading legal in Nigeria?

If the pandemic has taught us anything, it is this: No one can survive with one source of income. Also, it is unwise to blindly throw your money into any type of investment. You need something solid, a pandemic-proof opportunity.

This explains why many young Nigerians have been looking seriously into the forex trading sector. It is, afterall, the biggest and most liquid market in the world. And anyone can trade at any time, from the comfort and privacy of their smart gadgets.

However, many wonder if it isn’t counterculture. People can’t quite agree on the morality of making a living from speculating about the rise of the dollar against the pound sterling or the Nigerian naira.

And if you have a low appetite for risk, you probably want to be sure that Forex trading is legal in Nigeria. But before we address this concern, let’s look at a brief definition of Forex trading.

(READ MORE: Nigerian banks have written off N1.9 trillion impaired loans in past 4 years)

What is Forex Trading?

Forex trading is a type of transaction that involves the buying and selling of currencies.

There are several reasons why people and organizations engage in forex trading including:

  • To make a profit.
  • To regulate the market.
  • To facilitate trade.
  • To encourage tourism, etc.

Forex trading has caught on like wildfire. Like I said earlier, many investors are giving the forex market a go, probably because it seems to be pandemic proof.

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The main players in the foreign exchange market in Nigeria include:

The Central Bank of Nigeria

The Central Bank of Nigeria is, by far, the biggest player in the forex exchange business in Nigeria.

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The bank is empowered to make laws and regulations to regulate and control the other players in the forex market.

Since its establishment, the central bank has released so many guidelines depending on prevailing economic circumstances.

(READ MORE: Sterling Bank reveals N215 billion sequestered by CBN as CRR Debits)

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Commercial Banks

Most commercial banks in Nigeria are licensed by the central bank to deal in foreign exchange.

Customers of commercial banks both residents and non-residents can open and operate domiciliary accounts.

Authorized Buyers

Authorized buyers are corporate bodies and other end-users approved by the central bank to buy foreign exchange from the banks.

Authorized Dealers

In a bid to further liberalize the export sector in Nigeria, the central bank appointed some authorized dealers to sell forex to end-users.

Oil Companies

The oil companies in Nigeria also play a huge role in the forex trade. They earn a lot of foreign currency from the sale of petroleum products and sell the same to other forex players in Nigeria.

The Legal Regime of Forex in Nigeria

With the rise in forex trade and deals in Nigeria, some are beginning to question the legality of such transactions.

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The foreign exchange market in Nigeria is highly volatile owing to the dependence of the country on oil which is the major foreign exchange earner.

(READ MORE: Activity level rebound in June as locals sustain dominance)

Due to this volatility, the Nigerian government, through the Central Bank, the apex bank in the country has tried to come up with measures to regulate the sector.

Foreign exchange regulations and laws empower the Central Bank to make policies to control foreign exchange transactions in Nigeria.

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Some of these laws and policies include:

  • The Exchange Control Act of 1962.
  • The Central bank of Nigeria Act.
  • Banks and Other Financial Institutions Act, 2007.
  • The Foreign Exchange (Monitoring and Miscellaneous Provisions) Act.
  • The Money Laundering (Prohibition) Act.
  • Second-Tier Foreign Exchange Market 1982.
  • Bureau De Change 1989.
  • Autonomous Foreign Exchange Market (AFEM) 1995.
  • Foreign Exchange Market (IFEM) 1999.

These laws and regulations empower the CBN to periodically regulate transactions that are carried out in foreign currencies.

Offline Forex

Foreign exchange transactions conducted by banks and other authorized dealers are well regulated by the Central Bank of Nigeria.

The Central Bank regulations permit banks and other approved bodies to engage in foreign exchange trading.

(READ MORE: CBN adjust naira from N360 to N380 at SMIS)

Online Forex

Online forex transaction in Nigeria is relatively new and no specific rules are regulating that division.

However, there is a body called the Association of Online Forex Trading Agent in Nigeria.

This body which is recognized by the government is working with the CBN and other regulatory agencies to come up with a working framework for the trade.

Having said that, local forex traders must abide by extant laws to operate legally in Nigeria.

Many people who are now venturing into forex do not know how it works. They, therefore, consult dealers or brokers who take their money and trade on their behalf.

In Nigeria, it is illegal to trade with other people’s funds as only licensed brokers are authorized to do that.

Forex traders should also note that forex like other business transactions is subject to tax deductions.

Conclusion

The potential of forex trading is enormous for everyone involved because of the huge liquidity of the sector. And although it seems a bit counterculture, it isn’t.

The relevant government bodies are working hard to come up with a comprehensive regulatory framework to control online forex trading in Nigeria.

To avoid breaking the law, it is imperative for those who want to venture into forex to avail themselves of forex regulations.

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Currencies

Naira appreciates at NAFEX as CBN sells forex to foreign investors, first in 2021

Naira appreciated against the US Dollar at the NAFEX window on Wednesday to close at N410.50/$1.

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Wednesday,14th April 2021: The exchange rate between Naira and the US Dollar closed at N410.50/1$ in the Importers and Exporters window, where forex is traded officially.

Naira appreciated against the US Dollar at the NAFEX window on Wednesday to close at N410.50/$1. This represents a 0.12% gain when compared to N411/$1 recorded on Tuesday, as the Central Bank of Nigeria in its first sale, in 2021, to foreign investors seeking to repatriate their funds abroad, sold $20 million to them according to Reuters.

Meanwhile, the naira remained stable against the dollar for the second day at the parallel market on Wednesday, 14th April 2021 to close at N482 to a dollar, the same rate that was recorded on Tuesday, April 13, 2021.

READ: Naira falls at NAFEX window as Bitcoin rises above $63,000, an all-time record high

Trading at the official NAFEX window

Naira appreciated against the US Dollar at the Investors and Exporters window on Wednesday to close at N410.50 to a dollar. This represents a 50 kobo gain when compared to N411/$1 recorded on Tuesday, 13th April 2021.

  • The opening indicative rate closed at N409.64 to a dollar on Wednesday. This represents a 6 kobo drop when compared to N409.58/$1 recorded on Tuesday.
  • Also, an exchange rate of N422 to a dollar was the highest rate recorded during intra-day trading before it closed at N409.64/$1. It also sold for as low as N392/$1 during intra-day trading.
  • Forex turnover at the Investor and Exporters (I&E) window dropped significantly by 59.05% on Wednesday, 14th April 2021.
  • A cursory look at the data tracked by Nairametrics from FMDQ showed that forex turnover declined from $53.53 million recorded on Tuesday, April 13, 2021, to $21.92 million on Wednesday, April 14, 2021.

READ: Naira gains at NAFEX window despite 26.2% drop in dollar supply

Cryptocurrency watch

The world’s most popular digital currency, bitcoin, reached another all-time high on Wednesday, touching $64,717.01 before coming down to $62,298.51 as of Wednesday evening ahead of Coinbase’s historic stock market listing in New York.

  • Bitcoin, which has been up and down over the last few weeks, crossed $64,000 on Wednesday after it had just yesterday, crossed the $63,000 mark for the first time.
  • The rally has come in anticipation of cryptocurrency exchange Coinbase’s hotly tipped US stock market listing.
  • Earlier on Wednesday, the price of Dogecoin, recorded a new milestone as it went up by 54%, establishing a new all-time high of $0.1161.
  • Meanwhile, Coinbase, a Cryptocurrency exchange, finally made its highly anticipated debut on Nasdaq on Wednesday, April 14, 2021, becoming the first company devoted entirely to cryptocurrency to enter the US stock exchange with a $100 billion valuation.

READ: Naira remains flat as external reserve fall to just 6 months of imports

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Oil price gain

Brent crude oil price jumped on Wednesday to close at $66.63 per barrel, indicating a 3.98% increase compared to $64.08 recorded at the close of trade on Tuesday as the Energy Information Administration (EIA) reports crude draw.

  • The EIA in its report said that crude oil inventories had shed 5.9 million barrels in the week to April 9, compared with an inventory draw of 3.5 million barrels reported for the previous week.
  • The EIA’s inventory estimate comes a day after the American Petroleum Institute reported a 3.6-million-barrel inventory draw in crude oil for the same period but a 5.565-million-barrel build in gasoline stocks, which prevented oil prices from swinging significantly up or down.
  • The oil rally can also be attributable to the picking up of US oil demand as economic expansion quickens. The West Texas Intermediate (WTI) crude futures surged more than 5% on Wednesday and broke out the narrow trading range they had been stuck in since mid-March.
  • Morgan Stanley, meanwhile, said in a new note that it expected prices to remain range-bound through the end of the summer, at between $65 and $70 per barrel for Brent.
  • Brent Crude closed at $66.63 (+4.65%), WTI Crude closed at $63.18 indicating 4.99% gain, Bonny Light, $62.56 (+0.58%), OPEC Basket (+0.67%) to close at $61.87 while Natural gas declined by 0.08% to close at $2,617

External reserve

Nigeria’s external reserve gained about $34 million on Tuesday, 13th April 2021 to close at $35.172 billion, being the highest external reserve position recorded in over a month.

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  • This indicates a 0.1% increase when compared to $35.138 billion recorded on Monday, 12th April 2021.
  • It also represents an increase in the country’s external reserve position for the 16th consecutive day, having endured a significant downturn earlier in the year. Nigeria’s reserve has added a total of about $756 million in 16 days.
  • This recent increase in Nigeria’s external reserve could however be attributed to the increase in crude oil prices recorded earlier in March before the recent bearish trade in the crude market.
  • It could be attributed to the possible increase in diaspora remittance as the CBN offers incentives for every unit of a dollar received in Nigeria from diaspora remittance.
  • The external reserve is likely to get a further boost, as the Federal Government recently announced plans to issue $500 million Eurobonds for 2021.

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Currencies

Naira falls at NAFEX window as Bitcoin rises above $63,000, an all-time record high

Naira depreciated against the US Dollar at the NAFEX window on Tuesday to close at N411/$1.

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Naira stabilizes at black market as CBN continues its intervention in forex market

Tuesday,13th April 2021: The exchange rate between Naira and the US Dollar closed at N411/1$ in the Importers and Exporters window, where forex is traded officially.

Naira depreciated against the US Dollar at the NAFEX window on Tuesday to close at N411/$1. This represents a 0.31% drop when compared to N409.75/$1 recorded on Monday, as the world’s largest cryptocurrency, Bitcoin hits an all-time high rising above $63,000.

Meanwhile, the naira remained stable against the dollar at the parallel market on Tuesday, 13th April 2021 to close at N482 to a dollar, the same rate that was recorded on Monday, April 12, 2021.

READ: Naira gains at NAFEX window despite 26.2% drop in dollar supply

Trading at the official NAFEX window

Naira depreciated against the US Dollar at the Investors and Exporters window on Tuesday to close at N411 to a dollar. This represents a N1.25 drop when compared to N409.75/$1 recorded on Monday, 12th April 2021.

  • The opening indicative rate closed at N409.58 to a dollar on Tuesday. This represents a N1.30 gain when compared to N410.88/$1 recorded on Monday.
  • Also, an exchange rate of N436.81 to a dollar was the highest rate recorded during intra-day trading before it closed at N411/$1. It also sold for as low as N400/$1 during intra-day trading.
  • Forex turnover at the Investor and Exporters (I&E) window rose by 18.04% on Tuesday, 13th April 2021.
  • A cursory look at the data tracked by Nairametrics from FMDQ showed that forex turnover increased from $45.35 million recorded on Monday, April 12, 2021, to $53.53 million on Tuesday, April 13, 2021.

READ: Exchange rate weakens as external reserve records first growth in 36 days

Cryptocurrency watch

The world’s most popular digital currency, bitcoin, hit an all-time high above the $63,000 mark, extending its 2021 rally to new heights a day before Coinbase’s share listing in the United States.

  • Bitcoin closed at $63, 625.50 with several analysts feeling bullish, with price targets at $70,000 or higher by next month.
  • Risks remain, as some analysts choose to wait for confirmation of the breakout in price charts, especially as bullish positioning reaches extreme levels in the futures market.
  • The world’s biggest cryptocurrency, which has growing mainstream acceptance as an investment and a means of payment, rose by over 5% on Tuesday. Smaller rival Ethereum also reached a record high of $2,336.75.
  • Major firms including BNY Mellon, Mastercard Inc and Tesla Inc are among those to have embraced or invested in cryptocurrencies.
  • The digital currency has been widely adopted by many, replacing gold as the global digital-reserve asset.
  • Meanwhile, exchange tokens, such as Binance Coin, are seeing their value rise ahead of Coinbase’s public debut as well. Binance Coin, known as BNB, rose 23% on Monday, according to CoinMarketCap.com. Huobi Token and KuCoin Token, among others, also gained.

Oil price gain

Brent crude oil price rose on Tuesday as it closed at $64.08 per barrel, indicating a 1.68% increase compared to $63.02 recorded at the close of trade on Monday on signs of US inventory drawdown.

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  • Oil extended gains in Asian trading after an industry report pointed to another decline in US crude stockpiles that followed an upbeat assessment of the demand outlook from OPEC.
  • The American Petroleum Institute (API) on Tuesday reported a draw in crude oil inventories of 3.608 million barrels for the week ending April 9. Analysts had predicted a draw of 2.889 million barrels for the week.
  • OPEC boosted its consumption forecast for this year and predicted the market recovery will continue.
  • The latest data from the Energy Information Administration says that while inventories of crude oil are falling, U.S. oil production slipped from 11 million BPD to 10.9 million BPD during the week ending April 2.
  • Brent Crude closed at $64.08 (+0.64%), WTI Crude closed at $60.62 indicating 0.73% gain, Bonny Light, $62.56 (+0.58%), OPEC Basket (+0.52%) to close at $61.46 while Natural gas rose by 0.23% to close at $2,625

External reserve

Nigeria’s external reserve gained $102 million on Monday, 12th April 2021 to close at $35.138 billion, being the highest external reserve position recorded in over a month.

  • This indicates a 0.29% increase when compared to $35.036 billion recorded on Friday, 9th April 2021.
  • It also represents an increase in the country’s external reserve position for the 15th consecutive day, having endured a significant downturn earlier in the year. Nigeria’s reserve has added a total of about $722 million in 15 days.
  • This recent increase in Nigeria’s external reserve could however be attributed to the increase in crude oil prices recorded earlier in March before the recent bearish trade in the crude market.
  • It could be attributed to the possible increase in diaspora remittance as the CBN offers incentives for every unit of a dollar received in Nigeria from diaspora remittance.
  • The external reserve is likely to get a further boost, as the Federal Government recently announced plans to issue $500 million Eurobonds for 2021.

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