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Understanding currency trading and its dynamics

If you have never traded currencies or want to start, you are in the right place.



Why Forex trading is becoming popular in Nigeria, Why Forex trading is becoming popular in Nigeria 

Currency trading is a complex subject for some people, and has inhibited their willingness to take on the market.

I will dissect the mystery of currency trading with this post. If you have never traded currencies or want to start, you are in the right place.

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Some background

The Currency market is the largest in the world with about $6.6trillion traded daily. The currency markets are a consequence of global trade. Take Emeka as an example, he wants to export cocoa to Holland, he will earn dollars from that transaction, Emeka then wants to buy rice from Japan and import it back to Nigeria. This transaction has many exchange rate risks including;

  1. When he sells his Cocoa, the dollar rate may have fallen
  2. When he wants to buy Rice in Yen, Yen may have risen

With the currency markets, he can buy a Forward Derivative that can lock in an exchange rate for the rice and cocoa transactions. The thing to note is that the currency markets were not created for speculation but trade facilitation.

READ: Currency traders relatively neutral on U.S dollar, despite impressive U.S Jobs report

The Market, the Lot, the Quote, the Spread and the Pair

Currency market trading moves from market to market. Thus, the market will open in Asia, then to Europe, then the Americas, and back to Asia, closing on Friday evening to reopen Sunday evening. Thus, buyers seeking Yen will see more Yen volume as the Asian markets are open.

Currencies are also bought in lots sizes, stated as Micro, Mini and Standard Lots. If you are buying US dollars, the Standard lot size will be $100,000, Mini will be $10,000, while micro is $1000.


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Currencies are quoted in pairs. This means you cannot simply buy just US Dollars, as you would buy say shares of Tesla. You must make a quote to sell a currency and simultaneously buy another currency. For example, the base currency (the currency you want to buy) is quoted first, and the currency you quote to sell to get that base currency is called the quote currency is last. So if Emaka wants to buy $1000 US dollars and sell Yen, he will quote a micro par USDJPY.

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Currencies are also quoted up to the fourth decimal place. The lowest common factor in any currency pair is the Pip, if a currency rises, that rise is reflected in pip or the last digit of a fourth decimal point. The difference in the pips of the pairs is the spread. A large spread means few buyers and sellers, while a smaller spread means lots of bids and offers so less room for arbitrage

READ: U.S dollar drops, nears two and a half years low

It’s just trading no deliveries

The traders are not like Emeka who wants to receive rice, traders are not exporting or importing anything; thus, when they trade, they are not expecting to hold those positions or receive the currencies from the contract, rather, they are taking a position or a bet on the direction of that currency intending to make a spread.

When traders buy US Dollars, for instance, they are making a bet that the US economy will go up, meaning more investors will want to buy US assets and will demand more US Dollars to fund their purchase. Thus, traders seek to move from a less in-demand currency to a currency in demand.

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READ: Professional forex traders reveal their secrets to successful trading

Another example is a company that does cross border trades, e.g. BMW sells cars in the US in USD but remits those funds to Germany in Euros. BMW will offer to sell USD and buy Euros from the US currency markets. Thus, BMW will quote EURUSD 1.21110/1.21115 to a broker, meaning he wants to buy Euros and sell US Dollars at a spread of 5 pips. (1.21110 less 1.21115).

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Now imagine lots of European companies are exporting to the US and need to get Euros, they will keep selling US Dollars and buying Euros. This will make the US dollar weaker and less in demand. In this scenario, a profitable currency trade will be to take a position in advance and sell US today and buy Euros in advance and then reverse the sale by selling Euros to “BMW” today.

There are many ways traders determine currency movements, using technical analysis, but that’s another topic. This is just the basics.

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Tasks before the AfCFTA dispute settlement body

The success of the AfCFTA will depend largely on the willingness of the member states to adhere to the agreement.



The Dispute Settlement Body (DSB) of the African Continental Free Trade Area (AfCFTA) held its inaugural meeting on 26 April 2021 at the AfCFTA Secretariat in Accra Ghana. The DSB is composed of the representatives of the State Parties and shall have the power to establish Dispute Settlement Panels and an Appellate Body responsible for settlement of disputes between the member States.

The mandate of the DSB also extends to adopting the reports of the Panels and Appeal Body as well as monitoring and ensuring the implementation of the ensuing decisions. In carrying out its mandates, the DSB will work with the AfCFTA Secretariat while maintaining its independence in the area of dispute settlement.

The inaugural meeting signals the readiness of the AfCFTA dispute settlement infrastructure to take up any disputes that may arise in the course of trading amongst the member States. Disputes are inevitable in any free trade area and when any such disputes arise under the AfCFTA, the resolution is to be in line with the Protocol on Rules and Procedures on the Settlement of Disputes which forms part of Phase I Negotiation.

Recognizing its importance to the success of the trade deal itself, the Protocol proclaims that “the dispute settlement mechanism of the AfCFTA is a central element in providing security and predictability of the system” and “shall preserve the rights and obligations of State Parties under the Agreement and clarify the existing provisions of the Agreement in accordance with customary rules of interpretation of public international law.”

Though inspired by the World Trade Organization (WTO)’s dispute settlement architecture, the AfCFTA framework is meant to address some of the lapses in the WTO. In an exclusive opinion piece for “The Africa Report”, Mr Wamkele Mene, Secretary-General of the AfCFTA, explained how the AfCFTA will work in order to avoid the pitfalls of other trading blocs. As noted in the report:

The WTO’s tribunal of final instance for global trade disputes, the Appellate Body, has been reduced to irrelevance over disagreements on its composition. The paralysis of both the WTO’s negotiating and dispute settlement arms means that trade disputes between China and the United States, two of the WTO’s largest members, have flared into open hostility.”

Drawing from the WTO experience, the African States in negotiating the free trade treaty cherry-picked the aspects of the WTO’s dispute settlement system that have worked and jettisoned the problematic parts.

At the Virtual Press Conference held on 04 May 2021 to update the public on the status of the implementation of the AfCFTA and the progress made so far, the AfCFTA Secretary-General re-echoed the importance of the dispute settlement mechanism to the success of the AfCFTA while answering questions from journalists across Africa. Commenting on the milestone achievement recorded with the inaugural meeting of the DSB, he noted that:


“The dispute settlement is really the mechanism and is at the heart of the African Continental Free Trade Area. And it is at the heart of what we mean by a rule-based trading system. And at the heart of what we mean by market certainty and predictability. For the first time on the African continent, there is a dispute settlement body that will have oversight over all the disputes that arise under the agreement whether there are investments related, trade in goods, trade in services, market access related disputes. This body will have oversight over all of that.”

All eyes are now on the AfCFTA DSB as it shoulders the task of ensuring that disputes between member States are resolved in an efficient, transparent, fair and impartial manner. The starting point is to ensure that persons appointed to be members of the Dispute Settlement Panels and Appellate Body have the expertise and experience in the subject matter of the dispute and are chosen strictly on the basis of objectivity.

There is an even more important corresponding duty on the State Parties when nominating persons to be included on the indicative list or roster of individuals to serve as Panelists to ensure that nomination is based on merit and proven expertise on the subject matter. The member States should eschew any nepotistic or tribal considerations in nominating State representatives. The Nigerian government should resist the temptation to premise its nominations on Federal Character or other ethnic or religious considerations as we’ve seen in recent appointments.

Recent events such as the reported discriminatory measures against Nigerian traders in Ghana, the closure of the Nigerian border with Benin Republic, the Xenophobic attacks in South Africa on African businesses and the retaliatory attack on South African-owned businesses present examples of the kind of disputes that may come up before the AfCFTA DSB assuming that similar issues arise in the future. Others may include disputes over conflicting public policies, tariffs and non-tariff barriers, rules of origin, dumping, regulatory excessiveness, standardization, trans-shipment, taxation, market access, and consumer protection etc.

The AfCFTA dispute settlement mechanism is restricted to State-to-State disputes. The treaty is silent on the mechanism for the resolution of disputes between private individuals. Notwithstanding this limitation, the private sector participants such as the SMEs and other business entities will be able to petition their governments to implement the rights and obligations set out in the agreement establishing the AfCFTA. That way, the rights of the private sector can be enforced using the State instrument.

For instance, in a situation where citizens of a member State are being subjected to discriminatory measures in another AfCFTA member country, the affected country may decide to refer the case to the DSB on behalf of its citizens, after exhausting the amicable settlement options such as Good Offices, Consultations, Conciliation and Mediation. It is not yet clear what yardstick will guide such referrals or to what extent such anti-free-trade measures will impact on the citizens of the member state before it decides to challenge the infractions at the DSB. Whatever the case, where a member state fails to protect the rights of its citizens, the affected traders may seek other legal remedies available under the national laws or within any bilateral and multilateral instruments applicable to the disputes.

In relation to investment disputes, the ongoing negotiation of the AfCFTA Protocol on Investment is meant to clarify the uncertainty around the framework for resolving investor-state disputes. The member states in choosing to resolve their disputes within the AfCFTA framework should be aware of the fork-in-road provision under article 3(4) of the Protocol, which precludes a State Party who has invoked the dispute settlement procedure under the Protocol with regards to a specific matter from invoking another forum for dispute settlement on the same matter.  Another area of interest is the enforcement of decisions reached under the AfCFTA dispute settlement process.

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The effectiveness of a dispute resolution mechanism is often measured with the 3 E’s which are efficiency, expertise, and enforceability. Challenges will likely arise in relation to compliance with decisions under the AfCFTA as we have seen under the WTO and other regional trade treaties.  It is hoped that the desire to enhance investors’ confidence and the spirit of amity will spur the AfCFTA members to comply with decisions made by the dispute settlement bodies. In the end, the success of the AfCFTA will depend largely on the willingness of the member states to adhere to the agreement and to eschew any form of self-help when they perceive any breach of the trade deal.

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Insurance Recapitalization: The quest for efficiency

To tap into this, however, would require players to come up with innovative products.



Recapitalisation: 26 firms get NAICOM's approval

As the phase II deadline for the recapitalization of the Nigerian Insurance Industry draws nearer, cracks are beginning to emerge from the wall. The most recent being the National Insurance Commission’s (NAICOM) revocation of UNIC Insurance Plc’s license with effect from the 25 March 2020. Consequently, the firm was handed over to a receiver/ liquidator to ensure a seamless liquidation process.

According to Mr. Sunday Thomas, the Insurance Commissioner, the company currently manifests every symptom of a business that would not survive the recent wave, and all efforts to resuscitate it are being frustrated by its owner.

Over the years, especially since the last recapitalization in 2007, the industry has been engulfed in a brawl between the laggards and the high-fliers. While the underperforming entities constantly have issues of delay in claims payment, which has created distrust for the general insurance proposition in Nigeria, the “high-fliers” have continued to battle that narrative through increasing levels of efficiency.

READ: Insurance companies to report over N100 billion in claims in 2020

NAICOM has also been coming up with policies to ensure seamless insurance delivery. Recall that in 2019, NAICOM instituted measures to ensure that players in the industry make prompt claims and benefits settlement a priority as part of its quest to restore the eroding public trust for Insurance in Nigeria.

Since the policy of recapitalization was proposed by the regulator, activities have intensified in the industry as players seek to meet the stated deadlines. For instance, we saw a flurry of bonus issuance of shares in December 2020, as firms sought to meet the Phase I deadline by converting retained earnings to paid-up capital as directed by NAICOM. This followed in the track of the series of takeovers that were announced in late 2019 and early 2020. We note that beyond improving underwriting capacity in the industry, the recapitalization exercise would eliminate operationally weak firms that have been a spanner in the wheel of the industry over time.

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In our view, there is enormous potential for the players in the insurance industry in Nigeria given its untapped potentials as insurance penetration remains significantly low. To tap into this, however, would require players to come up with innovative products.


One of such innovative ideas in our view is developing products targeted at millennials and Gen Z, who are currently excluded from the insurance net in Nigeria; despite constituting a sizeable number of Nigeria’s population. Opportunities in the insurance industry are widely unexplored and a combination of favourable policies from NAICOM and efficient delivery by surviving players can help open more untapped areas.

CSL Stockbrokers Limited, Lagos (CSLS) is a wholly owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange.

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