Everyone wants to know how to trade forex in Nigeria. It is no news that forex trading is becoming popular and people are cashing out big time from it. Forex is the foreign exchange market, and It involves the buying and selling of a currency against another with the aim of making a profit. The forex market is the biggest liquidity market in the world, with over $6 trillion traded every day. This gives it high liquidity, enabling huge profits to be made. The forex market is open 24 hours a day, Monday through Friday.
Currency pairs are traded in the forex market. There are different types of currencies, such as British Pounds, denoted by GBP, the American Dollar by USD, Swiss Francs by CHF, and Euros by EUR. When you compare two currencies, you get a currency pair. Example; the EUR against the USD becomes EUR/USD. Hence, when the EUR rises against the USD, the dollar falls in value.
See the: Best Forex Brokers in Nigeria. Today, I’ll take you through step by step on how to start forex trading in Nigeria
How to trade Forex in Nigeria – Step by Step
Acquire basic Forex Trading skills
The first step in trading forex in Nigeria is to first acquire the relevant forex trading skills. When I first started trading forex, I invested my money and lost everything, not once, not twice until I finally accepted that I didn’t know anything about forex trading and I needed to learn. I started on a path to learn forex starting from the basic forex terminologies to forex trading calculations.
Below is a list of some basic forex terminologies you need to know:
- Base Currency: This is the first currency in a currency pair. For example, for GBP/USD pair, the GBP is the Base currency
- Ask Price: This is the price at which the broker is willing to sell the currency pair.
- Bid Price: This is the price at which the broker is willing to buy the currency pair.
- Spread:This is the difference between the bid price and the ask price.
- Pip: Also known as “percentage in point” or “price interest point” is the smallest movement of a currency pair. A Pip is the 4th decimal on a price of some currency pairs such as EUR/USD while the 5th decimal number is called a Pipette.
- Leverage: Leverage is a concept that multiplies your exposure to a financial market without you committing extra investment capital. For example, instead of providing 100,000 units to trade 1 standard lot, you will only need a few dollars while your broker provides the remaining depending on the leverage size you chose when creating your account with a broker.
- Bullish: This is when the market tends to be increasing in price. Traders look for opportunities to enter the market and go long i.e to buy.
- Bearish: This is when the market tends to decrease in price. Traders look for opportunities to enter the market and go short i.e to sell.
- Lot Size: This is the amount of currency you are willing to trade at a time. A standard lot size means you are willing to trade 100,000 units. You can also trade in microlots which is a division of the standard lot.
- Going Long / Short: Going Long means buying the market and short is selling the market.
- Risk to Reward: When you enter a trade, there is a possibility that the trade will go against you before it finally goes in your favor. The risk is the amount you are willing to risk before the trade goes in your direction. While the reward is the amount you are set to gain when the trade finally goes in your direction. The minimum risk to reward you should target is 1:2 i.e risk 1 part to gain 2 parts.
- Stop Loss: This is a specific level you set to ensure that when a trade is going against you, it will close out in order to reduce your risk exposure.
- Take Profit: This is any position you close out your trade and take your gain.
- Trading platform: Is the interface you use in carrying out your trades.
Basic Forex Calculation: If EUR/USD is trading at 1.54670 and you think the price will drop, so you enter the trade to short the market (sell) and the price moves in your favor to 1.54000, which is calculated as 1.54670 – 1.54000 = 67 pips profit. If the lot size you used for this trading is 0.1 then the value of 1 pip move is 1 USD hence, 1 USD X 67 Pips = 67 USD profit. But if the trade goes against you to 1.54770 i.e. 1.54770 – 1.54670 = 10 Pips loss. Hence, 1USD X 10 Pips = 10 USD loss.
Read: Scam and Fake Forex Brokers in Nigeria
Choose the Best Forex Broker
A forex broker is a company that connects you to the forex market and grants you the ability to buy or sell foreign currencies through an online trading platform. There are many unregulated forex brokers out there hence as a beginner, you need to tread carefully when choosing one.
Below are factors to consider when choosing a forex broker in Nigeria:
- License and regulation
Ensure that the broker you intend to use is licensed to offer brokerage services and is a member of an independent regulatory organization. If your broker is not licensed and regulated, then your funds are not secured as that broker can be a scam and disappear at any time.
- Payment Methods
A reputable broker most provide Speedy and hassle-free deposit and withdrawal options. These options can include bank transfer, e-payment (e.g Skrill) and bank cards. If the payment methods of a broker are few and complicated, be careful as that broker might not be trustworthy.
- Spreads and commissions
When you have a live trading account with an online brokerage, you will be charged various forms of commission. They can differ from one broker to the other, and they can have an impact on your profits. Look out for their spreads and commissions and make sure they don’t not charge too high compared to other brokers.
- Trading platform and knowledge resources
Your broker must have their own online trading platform or Mobile Trading App. The trading platform provided by your broker should be easy to use and most have a news feed and technical tools such as indicators. Also, the trading account the broker gives you must be able to connect with any of the common trading platforms, such as Metatrader 4. Your broker must be interested in the growth of your trading skills hence, they must provide educational resource for new forex traders.
- Award and Recognition
Every broker should have a number of international awards and recognition on their shelf as proof of their dependability and success in the field.
- Customer service
Your forex broker must have a prompt response time and be available anytime you need them.
See the list of best Forex Brokers in Nigeria
Open Forex Demo Account & connect to trading platform
After choosing a trustworthy forex broker, the next step is to open a demo account with the broker. A demo account is a type of account your broker provides for you with fake funds, the funds provided in this type of account is not withdraw-able, it is for you to practice and master your trading skills.
To open a demo account, you need to first create an account with the broker by signing up with your email and password. After accessing your dashboard, you will see “create/open a demo account”. Just click on it and create a password for that demo account. After that, you will be provided specific details for that account, including login and server name.
Brokers provide their own trading platforms; however, if you decide not to use theirs, you can simply connect this demo account to any free trading platform such as Metatrader 4, Metatrader 5, cTrader or TradingView. The login, server name and password are what you will use to connect this demo account to any free trading platform you choose.
To connect the demo account to a trading platform, like Metatrader 4 or 5 for instance, you first need to download the app on either your phone or PC, then go to Manage Account, then click on the + symbol and type in your broker name and select it, then put in the demo account details; login, server name and password, and that’s it, it’s connected. You can now take your trades on that trading platform.
Also, take note that each broker has a list of the trading platforms that they can be connected to, as they might not be able to connect to all trading platforms. You can check your broker’s website for a list of trading platforms they allow. The same way you created and connected this demo account is the same way you will create and connect a real account where you will deposit real funds. But it is advisable you don’t open a real account yet until you have practiced and mastered your trading skills with the demo account.
Read also: Cryptocurrency Investment and Trading in Nigeria
Choose Forex Trading Strategy with Maximum Profit
Before choosing a forex trading strategy, you first need to know that there are 2 ways of analyzing the forex market and the different types of trading. Listed below are the 2 ways of analyzing the forex market:
- Technical Analysis – Involves examining the charts to know if the price of a currency will fall of rise. This method involves price action
- Fundamental Analysis – Involves examining market news and events to know if price of a currency will fall or rise.
There are different types of forex traders out there. After understanding the different types of forex trading, you can now pick which type of trader you want to be. The following are different types of forex trading in Nigeria:
- Scalping: Scalping is the shortest trading strategy that involves the use of technical analysis. Scalpers only keep positions open for a few minutes. These short-term traders aim to make a tiny profit. Their aim is to make many trades with little profit and let the profits add up for the day. Many traders find this type of trading time-consuming because you will need to constantly watch the market movement just to make a few gains.
- Day Trading: Unlike scalpers, day traders spend time to thoroughly analyze the market. Day traders initiate their trades and typically hold for minutes or hours and close before the end of the day – They do not leave their trades overnight. These traders can trade any currency pair as long as they wait patiently for a trade setup that they presume will turn out profitable. They also have to monitor their charts constantly, but not as intensely as scalpers. A day trader can use both or either technical or fundamental analysis to analyze the market.
- Swing Trading: This type of traders leaves their trades for several days or even weeks. Most of these types of traders analyze their charts overnight using both fundamental and technical analysis. Swing trading is suitable for traders that want to trade part-time so they can have more time to spend on other commitments.
- Positional Trading: Like swing traders, position traders also look for long-term trade opportunities, hence, they leave their trades for weeks, months, or even years. They use both technical and fundamental analysis to enter and exit the market. Position traders do not monitor their chats like other traders, they only monitor their charts to keep an eye on the major trend. It can take weeks before they find an entry position and involves more capital compared to the other trading types.
Regardless of the type of forex trading you choose, you need an adequate strategy to conquer the market.As an aspiring forex trader in Nigeria, you might have come across different strategies, including the use of indicators. You might have even bought the so-called “special indicators” that might not turn out profitable for you in the long run. Some indicators are lagging, that is, they give you signals late, which in turn does not provide good entries.
You should always remember that in forex, the idea is to do what other profitable traders are doing, which is to follow price movement. Hence, the most important strategy used by almost all profitable traders is the Price Action strategy. As a beginner in forex trading in Nigeria, you might have been told that it is hard to understand price action, but that is false. Some people say that to deceive others so they can sell them their indicators.
It can take a month or two to fully understand price action, but that will be your greatest investment towards being a successful trader. Also, it is important to focus on a few currency pairs. If possible, focusing on one pair is advisable for beginners.
What is Price Action?
The price action strategy entails analyzing recent price data to determine what price is doing now and what it is likely to do in the nearest future.
It includes understanding the following:
- Support and Resistance
- Understanding Trendline
- Price levels, such as psychological levels
- Multi-time frame analysis
- Chart patterns
- Candlestick patterns
Although no trading method is 100% accurate all the time, but, price action is extremely accurate with a win rate of over 80%. You can combine price action with any indicator such as Moving Average to confirm your entries. The Average True Range indicator (ATR) can be used to determine your stop loss (1 ATR above the recent high or low).
The head and shoulders (or inverted head and shoulders) pattern is one of the most prominent patterns utilized by price action traders, with a win rate of over 85%. Other patterns include the bullish and bearish rectangles, which have around 80%-win rate, and the triple top and triple bottom patterns also with an 80%-win rate.
How to invest in Bitcoin & other cryptocurrency in Nigeria – Complete Guide
Choose the Best Trading Time
There are four market sessions that run at specific periods within a day. The forex market starts with the opening of the Australian session, then Asia, Europe, and finally the US market until it closes on the weekend. The bitcoin market is the only market open on the weekends; hence, it runs 24/7.
When people wake up in Sydney is when people in London are going to sleep. Institutions leave their trading offices in London by 5pm, but at that time it is mid-night in Asia. Simply put, the reason there are different market sessions is because of the different time zones.
The forex market operates during the normal business hours of the four different time zones of the world.
|Trading Session||Nigerian Time (GMT +1)|
|Sydney Session||10:00 PM to 7:00 AM|
|Asian Session||12:00 AM to 09:00 AM|
|London Session||08:00 AM to 05:00 PM|
|New York Session||02:00 PM to 11:00 PM|
The Sydney and Asian markets have the least volume, i.e., not so much money circulates in the market during their sessions. However, because the London and New York sessions have the largest economies, the volume during these 2 sessions are very high. Especially, between 2pm to 5pm when London and New York sessions overlap. The best time to trade forex in Nigeria is between 8am to 4pm.
Learn the Risk and Money Management strategy
Loss in forex trading is inevitable, but can be controlled by implementing a Stop Loss. A stop loss is put in place to ensure that when a trade is going against you, it will close out at an initially specified level in order to reduce your risk exposure. If you do not set a stop loss, the trade can continue going against you till it wipes out the entire funds in your account.
You also need to apply the appropriate risk to reward ratio with a minimum of 1:2, the 1 there is the level at which you set your stop loss (risk) and the 2 means you make x2 of what you are willing to risk for that trade. i.e. if you are risking 2 dollars for a trade, you should make at least 4 dollars profit if the trade moves in your favor.
Simply defined, Forex money management is a set of self-imposed rules that successful traders adhere to in order to efficiently manage their money, minimize losses, maximize profit, and gradually expand the size of their trading account. Below are some tips on money management:
- Trade what you can afford to lose (e.g. 1% of your account per trade).
- Measure your risk before entering a trade.
- Define how many trades you can have running at a time.
- Decide how many positions you can stack per trade.
- Define a maximum loss you can tolerate per day/week.
- Withdraw you profit.
If you start to make a decent profit in your trading account, take part of it out, enjoy it, and put it to good use. The longer money remains in your trading account, the more likely it is that you will trade with it and lose it.
Read: Perfect Money in Nigeria: How to Open, Fund & Withdraw from Perfect Money Account
Build Your Trading psychology
Fear, greed, remorse, hope, overconfidence, doubt, anxiousness, and other emotions are common among forex traders. While every trader experiences this emotional roller coaster, a successful trader recognizes that allowing emotions to affect financial decisions is never a good idea.The true definition of trading psychology is not allowing your emotions to influence your trading selections.
Below are some psychological factors that influence a trader’s thinking, as well as some professional tips for dealing with them.
- Fear: When anything is in danger, we have a natural fear response. While trading, risks can arise in the form of unfavorable news about a currency, a trade that is not going your way, or the fear of losing your money. Fear can cause you to close out your trade and leave the market when you should still be holding your position.
What to do: Every trader must first determine what they are terrified of and why they are afraid of it. Consider these issues ahead of time so you can quickly recognize the problem and find a solution.Your main goal should be to avoid letting fear of loss stop you from creating money.
- Greed: Greed comes in when you want to make a lot of money. Remember, getting rich from trading is not built in a day. If you happen to be on a winning streak, take your winnings and go on. Your greed will almost always convert a winning streak into a calamity!
What to do:You should have a predetermined profit level to prevent greed. Set your stop-loss and take-profit levels before you enter a trade.When you have a sound trading mindset, you are satisfied with your gains and do not seek unreasonable profits.
- Regret: Trading regret can take two forms; regret for a trade that didn’t work or regret for not placing a trade that could have succeeded.
What to do: To avoid trading regrets, you have to accept that you can’t have all of the market’s opportunities. Remember that in the forex market, the rule isthat you gain some and lose some.
- Hope: In forex, you don’t work with hope. Hoping that the trade will get better can put your entire investment at risk.
What to do: If you are in a trade that is going against you, do not move your stop loss with the hope that it will go in your favor later. Leave you stop loss at the level you have initially set it based on your strategy. If you lose that trade, it is better than you moving your stop loss which affects your trading mentality. Stick to your rules!
Get A Forex Trading Journal
Finally, get a forex trading journal. A trading journal is a document or book in which you keep track of everything you do as a trader. It should include your entry, stop loss, and take profit rules. It should also include your risk management, psychology rules, and so on.
It should also contain all your trade records, i.e. details of each trade with the following heading:
- Entry date
- Exit date
- Entry price
- Position size
- Stop loss
- Take profit
- Exit price
- Profit/Loss (P&L)
- Notes, etc.
Keeping a trading journal helps you to be accountable and gives you an insight into how your trading strategy is performing over time.
list of Forex Trading Tools
Listed below are all the tools you need to trade forex in Nigeria:
- Your device: You definitely need a device such as your phone or laptop to carry out forex trades.
- Internet connection: You need a reliable internet connection to connect to a forex broker through your device. You can practically trade from anywhere or set up a home office with multiple screens to check different currency pairs at a glance.
- A Broker: The organization that will connect you to the market is a forex broker. Because forex is a decentralized market with limited regulation, not all brokers are reputable. Ensure you do your research to select a trustworthy broker.
- Funds: With some brokers, you can start trading with a minimum of 10 USD. But before you invest your money, you should open a demo account, where you will be funded with a certain amount. The fund in this demo account is not withdrawable as it is called “demo” – not real money. The main purpose of opening a demo account is to practice trading until you have mastered it.
- Trading Platforms: This is the user interface you will use to analyze and execute your trades. The most common ones are Tradingview, MetaTrader 4, MetaTrader 5, and cTrader. All you need to do is connect your broker to any of these trading platforms using your login and password and you are good to go.
Pros of Forex Trading in Nigeria
- Low Capital Investments: You can start trading forex in Nigeria with as low as 10USD. But, you should only begin trading with a capital of at least 100USD and do not risk more than 5% of your account in one trade.
- Volume: Over $6 trillion moves in the forex market daily; hence, there is opportunity to make huge profits.
- Open 24 hours: The market is open 24 hours a day, 5 days a week, so you have opportunities to make profits during open hours
- Currency choices: In forex trading, you can trade a wide range of currencies from around the world. Including the major, minor, and exotic currencies and even metals and commodities.
- No location: You can trade from anywhere in the world, you only need your device and internet connection.
Cons of Forex trading in Nigeria
- High Risk: If you don’t apply the right measures, such as stop loss, you can lose your entire capital. Also, if you don’t apply the appropriate risk to reward, you can lose all the profit you have made.
- Bad Brokers: There are plenty brokers out there that are not regulated. A solid Forex broker will be regulated by top-tier regulators, charge low fees, and provide traders in any part of the world with speedy withdrawal options.
- Emotional: Trading Forex is more emotional than strategic; if you have a good strategy in place without the right emotions to be patient for a good setup and the right emotions to deal with losses you cannot be a profitable trader.
- Volatility: The market is very volatile. A slight pressure in the market such as news and events can cause a huge and very rapid change of over 200 pips in the market which can be against you.
In conclusion, forex trading in Nigeria is very profitable, but you need to understand your trading strategy, focus on a few pairs, and have good risk management for you to be successful.
Before you start investing in forex, practice with a demo account until you fully grasp the knowledge of how it works before you make your first investment. Also, forex is not a get-rich-quick scheme, it takes patience, understanding, constant practice, and back testing to be successful.
Are you aspiring to trade forex in Nigeria or have you already started trading in the forex market? let us know in the comment below also tell us about your trading journey.