The Forex Exchange Market, or more commonly known as the Forex Market, is where the trading of currencies occurs on a daily basis.
The Forex Market is the largest market in the world with trades to the value of over $5 trillion occurring on a daily basis. These trades are done Over-The-Counter, or OTC, which means that transactions occur online through computer networks.
The Forex Market is the most liquid market in addition to being one of the most volatile due to the significant amounts of trades occurring daily, this results in lower transaction costs when trading Forex.
Nigerian traders have access to the Forex Market 24 hours a day, 5 days a week with the added benefit that trades can occur in any time zone due to the fact that when one market closes, another will open.
The basics of Forex Trading for Nigerian beginner traders Forex Trading in Nigeria
Over the past decade, Forex trading has become significantly easier in Nigeria with the past decade reflecting stronger economic growth in addition to rising disposable incomes.
Forex Trading has increased greatly in Nigeria and as one of the most prosperous countries in Africa, various Forex traders based in Nigeria are believed to trade positions that are worth at least $1.25 million on average per day.
More and more Forex brokers are welcoming Nigerian traders and especially high-volume traders to expand their reach across the globe in addition to expanding their customer base.
Common Forex terms and definitions
Before beginner Nigerians can take to the Forex Market, it is imperative that they first familiarize themselves with common Forex terms and their definitions that they are highly likely to come across during their trading activities, these include, but is not limited to:
- Base Currency – is the currency that the trader is currently holding. A trader from the United States will most likely have the US Dollar as their base currency. This currency is always the first one in a currency pair
- Quote Currency – this is the currency that the trader will purchase and is to the right of the currency pair.
- Bid price – this is the price that the trader’s broker is willing to either “bid” or “buy” the base currency in the possession of the trader.
- Ask price – this is the price that the trader’s broker will “ask” the trader in exchange for buying the trader’s quote currency of choice. Traders should note that the asking price will always be higher than the bid price.
- Spread – this is the difference between the bid price and the asking price expressed as pips. The spread is the commission that the broker receives for rendering their services.
- Pip – stands for “Percentage in Point” and it is the smallest measurable value of currency movements. One pip is equal to 1/100th of the trader’s base currency.
Developing a Forex trading plan
A trading plan consists of a set of rules along with guidelines that not only shape the trader’s trading behaviour but also define it.
Nigerian traders need to evaluate their needs, goals, and limitations before they can start trading to ensure that they avoid emotional, chaotic trading with no clear goal or objective in mind, along with managing their risk behaviour and limiting their exposure to risk.
In addition, it is imperative to keep a trading journal to keep up with any possible patterns in trading and to take note of mistakes so that they can be avoided in future.
Choosing a trading strategy
Once the Nigerian beginner trader has a clearer idea of what they want to achieve through trading and what their limitations are, they can research and evaluate trading strategies that will be in accordance with their trading plan.
When choosing a trading strategy, the main consideration is the trader’s personality because it will be assessed by performance, quality of historical data and the implementation of the strategy.
There is a variety of trading strategies that the trader will have to explore, evaluate, and test by making use of demo accounts provided by brokers.
How to choose the right Forex broker
In order to trade Forex, the beginner Nigerian trader will have to research, evaluate, and compare a variety of Forex brokers in order to find one that caters for their trading needs and therefore it is imperative to consider the following when viewing brokers:
- Know your needs – through a trading plan.
- Narrow the fields – look at the brokers offer and compare them hands-on by opening demo accounts and look at different reviews.
- Ensure that the broker is highly reputable and strictly authorized and regulated by reputable entities and that it holds the relevant, necessary licenses.
- Evaluate the fees – this is why the trader needs an indication of their financials, to evaluate whether they can afford the different trading and non-trading fees in comparison to what the broker offers for the charged fees.
- Test the broker’s platform by opening a demo account.
- Look at educational and research tools and resources
- Ease with which funds can be deposited and withdrawn
- Customer service – traders need to consider and test this should they require any assistance or should they have any queries.
Choosing a Forex Market in which to trade
When trading Forex, traders have three different ways in which to trade on the Forex Market, these include:
- Spot Forex Market – which involves the physical exchange of a currency pair at the exact point the trade is settled or within a short period of time.
- Forward Forex Market – during this, the trader enters into a contract or agreement to buy or sell a set amount of a certain currency at a specific price which can be settled at a specified date in the future or in a range of future dates.
- Futures Forex Market – this contract is exchange-traded in buying or selling a certain set amount of a given currency at a specified price and date set in the future.
Keeping an eye on the driving forces that move the Forex Market
There are several factors, or forces, that drive the Forex Market and prices/exchange rates of currencies which are subjected to the supply and demand of those currencies. These driving forces include:
- Central Banks
- News Reports
- Market Sentiment, and others.
It is important that beginner Nigerian traders start taking a keen interest in the driving forces that impact on their trading activities by making use of reliable sources through which to obtain news.
Trading Forex may seem like an extremely intimidating task when beginner Nigerian traders start out, but by making use of guidelines and obtaining a basic understanding of the process involved with trading Forex, they should be well on their way to becoming experts.
A variety of brokers offer the use of demo accounts which allows beginner traders the opportunity of testing their offering while gaining vital experience and improving their trading skills.