Barriers to Forex Trading in Nigeria

By: Damian Okonkwo

A. High and unstable exchange rate

The conversion rate from naira to dollar or other international currency in the Forex market today is really so high. Thus a huge amount in Naira upto the monthly earnings of an average Nigerian trader when converted to dollar is found to be less than a hundred dollar which is the least amount required as initial deposit by some brokers as to commence Forex trading. Often the official exchange indicated by the Central Bank of Nigeria is quite different from what is charge for Naira exchange in the Forex market today especially by brokers and black market. For instance the exchange rate used by brokers operating in Nigeria today is as high as #520 per dollar, while we still find a higher price at other exchange platforms. This means that #50,000 which is the average monthly earnings of Nigerian civil servants is even not up to $100 when converted by the brokers. The crux of the matter is the fact that the exchange rate keeps increasing daily against the Nigerian naira with no end in view. Brokers today are known to fix their exchange rate themselves in Nigeria with no regulator to stop them.

B. Lack of Capital

Obviously given the high rate of unemployment in Nigeria today, it becomes very difficult for an average Nigerian to raise the needed capital to begin Forex trading. Often, Forex trading demands that the begineer trader should invest only the amount he/she can afford to loose. Unemployed people which domimates the Nigerian populace today have hardly gotten enough to live on, not to talk of the amount to spare or loose in the Forex market which is very volatile. Hence, the average Nigerian trader would prefer to refrain from Forex trading on learning immediately that there exists the possibility of loosing ones investments without reservations especially if the market goes highly contrary to his position and he fails to use stop loss.

Similarly, this lack of Capital has exposed the Nigerian traders to taking unimaginable risk in the Forex market. Thus, with insufficient capital, you might be prone to overleveraging and overtrading just to get sizeable returns. You might equally be so emotionally affected by market fluctuations and you jump in and out with great loss.

C. No Forex Broker regulator.

Another remarkable barrier to Forex trading in Nigeria is that there is poor security for investors deposits. Nigeria does not have a Forex broker regulator that makes sure all Forex brokers are registered with them and given license before they operate just as we have the FCA in UK, ASIC in Australia and SEC in the US. For instance no online Forex brokers operating in Nigeria is registered with either CBCN or EFCC. These CBN is more preoccupied with foreign exchange such as Bureau de change rather than with Forex brokers. This diminishes the traders confidence in choosing a broker in Nigeria. However, one can always choose those brokers regulated offshore and outside Nigeria by either FCA, SEC, ASIC or other regulators.

D. Poor knowledge about the market.

Knowledge they say is power. Hence, without proper knowledge, one cannot trade the Forex market. Most Nigerian traders lack the necessary knowledge to trade the Forex market. They jump in with all they have and jump out empty crying that the Forex market is either a scam or Ponzi scheme. This is simply a story for the illiterate.

E. Past records of frauds

Many Nigerians today are embittered about Forex trading. This is based on their experience of scams by different Forex bodies and brokers. Brokers and signal providers have so much exploited the ignorance of the masses and eloped with their funds. Often attracting them by promising the high daily and monthly returns which are never realized. Today many Nigerians see brokers as frauds even the original ones too.

F. Unpredictable Government policies.

The policy of the Central Bank of Nigeria influenced by the government of the day towards Foreign exchange is highly unpredictable. Many suppose that the later, is using the exchange sphere as a testing ground for any kind of policy. This has really affected the exchange rate of the Nigerian naira in the Forex market today. Some brokers have gone to the extent of not including the Nigerian naira among their currency pairs available for trading.