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.
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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.
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.
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.
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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.
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.
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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.
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.
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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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