The forex market is the biggest financial platform, and many people are moving into it. The forex market has catalyzed Nigeria’s economic growth. But what exactly is forex?

What Is Forex?

Forex trading involves a change in the currency for trading. This exchange commonly happens in pairs as they can be used to carry out International transactions easily. 

It opened up space for making money by exchanging high-value currencies for low-value currencies. In forex, you don’t make money by trading. Correct predictions of trading derivatives and price speculations also enable you to earn.

How Does Forex Work, And How Can You Earn From It?

Forex trading might be considered similar to buying and selling of stocks, but the stark contrast to both of them is that forex trading is done in pairs. For example, EUR/USD ( euro/U.S dollar) or JPY/GBP (Japanese yen/British pound). 

Forex trading is the process of selling a currency to purchase another. Profits arise if the currency bought rises in contrast to the sold currency.

To explain, let’s assume the exchange price between the euro and the US dollar is 1.40 to 1. If 1000 euros are purchased, $1400 US dollars is paid.

If the currency rate moves later on to 1.50 to 1, you can sell these euros for $1500, making a profit of $100. Sweet right?

The difference in purchase and sale price is the profit. The broker receives a small commission from your trades named a spread.

A broker is your person on forex, or your “hands,” so to say, who provides you with access to the market.

Forex trading signals are manual setups to enable traders to trade quickly, resulting in better accuracy and effective results. The main aim of a forex trading signal is to make users comfortable and for traders to grow their accounts and find profitable trades.

Is Forex Trading In Nigeria Legal?

Forex trading in Nigeria is legal if you have a licensed broker or trading for yourself.

The Nigerian government has acknowledged the forex market, making trading in Nigeria available.

Forex trading in Nigeria has dramatically interested many due to its lucrative nature. Forex trading is legal in Nigeria on the condition that both trader and broker stick to the regulations that guide this market space.

The Central Bank of Nigeria governs forex trading in Nigeria, and brokers are expected to fulfill specific requirements to trade with their clients.

For a forex trader, it is imperative to understand currency pairs and ascertain which are traded more actively.

However, popular currency pairs like the EUR/USD are of great interest in Nigeria. This type of pairing is one of the major forex pairs and is attributed to it offering minimal spreads to brokers.

Its fluctuation is also a decoy for many traders, as this allows for the capitalization of sudden changes.

Who Can Trade Forex and How Do They Begin? 

Forex is not limited to anybody; as long as you have enough capital and patience to acquire the trading skills, you can trade.

Anyone can trade forex irrespective of being new or experienced in this market or having gathered knowledge from other sources.

They can also do this by :

• Developing their trading knowledge 
• Building a trading strategy
• Gaining experience by trading the market

Forex trading can be done by any Nigerian and at any given moment, from the comfort of home or anywhere, provided there is access to the Internet.

Requirements needed to trade forex online include a laptop, a stable internet, a good trading strategy that has previously been tested on a demo account, and a decent starting capital.

Firstly, a trader needs to sign up with a reputable forex broker, and once a trading account has been set up, a forex trade can be placed. Calculations of profits or losses ensue.

To start forex trading in Nigeria, ensure to find a CFD broker among many other brokers who have a  record of honesty and low spread, and work with elite regulatory bodies to guarantee the safety of funds entrusted to them.

How Much Capital Is Needed To Trade Forex?

The amount of capital used for trading forex depends on:

• Your broker
• Type of trading account
• Leverage 
• Trading Strategy 
• Amount of Lots

Broker

Every broker has its terms of operation that the trader must comply with before opening an account with them. The least amount of capital specified by a broker should only be used to open an account.

After validation of a trading account, a substantial amount of capital should be used in the trading account to lessen the risk of a margin call (A margin call takes place when the price of an investor’s margin account drops under the broker’s expected amount leading to loss of money).

Type Of Trading Account

The type of account held greatly influences the capital to be used. Lot sizes and market prices vary between a micro account and a standard account. If a lot size of 0.01 is used in a micro account, and the market price moves by 100 points, that will be equivalent to 0.1 units of the currency type in your trading account.

The smallest capital for this sort of account is $5; however, to be safe, it’s best if you’ve got at least $50.

In a standard account, On the other hand, if a position is opened using a lot size of 0.1 and the market price moves by 100 points, it will be equivalent to 1 unit of the currency used in your account. 

In most standard accounts, the minimum capital is generally $500, but some brokers require you to have a higher initial deposit. It’s best if you’ve got $1000.

In executive accounts, the minimum capital is mostly $5000. 

Leverage 

Leverage in simple terms involves allowing traders to open higher trades than the money in their accounts. The trader borrows money from a broker, and the higher the leverage, the more trades the trader can open with less capital. The maximum amount of leverage varies among brokers.

Amount Of Lots 

Lot sizes affect free margins directly. With a micro lot size, the number of lots used makes up a small used margin. The used margin is relative to a standard lot size. Micro lot sizes, as the name implies, are used for micro accounts, while standard lot sizes are used for standard accounts.

Trading Strategy

Trading strategies are when it comes to the amount of capital a trader should have. For People who place a high volume of trades in a short period, a minimum of $10000 trading capital is necessary to enable each trade to open with a relatively larger lot volume and hence better returns.

If your trading strategy requires too many trades simultaneously, a more significant amount of capital is needed.

Can You Get Rich Instantly From Forex?

Forex can indeed make you rich, but it takes time, persistence, and hard work.

Every forex trader at some point has lost money on some trades. Forex is not a market space that promotes a get-rich-quick scheme. It is a skill and takes time to learn.

The Forex market indeed is a famous market for speculations due to its vast size, liquidity, and the tendency for currencies to move in trends powerfully.

There are many forex traders worldwide and more people looking to join, but the success in forex is limited to a small percentage of traders. There are risks involved, but it’s possible to minimize these risks.

To be a successful forex trader:

• You must know how to limit leverage 
• Ensure quick and smooth transactions 
• Use a tested and trusted broker

Risks Involved In Forex And How To Minimize It

The main risks involved in forex trading are listed below:

• Exchange Rate Risks 
• Transaction Risks
• Leverage Risks
• Counterparty Risks
• Interest Rate Risks
• Risk of Ruin
• Country Risks

Exchange Rate Risks

These are risks caused by changes in the value of a currency. It is based on the impact of consecutive fluctuations in global supply and demand equilibrium. 

This risk is of considerable importance and is rooted in the comprehension of the direction a currency will move after consideration of all possible factors that can influence it. Although exchange rate risks are inevitable, they can be reduced considerably by hedging.

Transaction Risks 

Transaction risks result from an exchange rate and are associated with the time differences between the beginning and settlement.

Placement of trades on the forex space happens within a time-space of 24 hours which can lead to a change in an exchange rate before the settlement of a trade.

Transaction risks increase with the higher time difference between the ring and closing a contract. This threat can be minimized with the aid of using derivatives.

Leverage Risks

A relatively small price fluctuation in a contract may result in immediate and significant losses in the surplus of the invested amount.

Excessive use of leverage increases losses during unstable market conditions. 

To minimize leverage risks, do the following:

• Determine risks per trade
• Filter every trade using a risk ratio
• Determine position size

Counterparty Risks 

Firstly, a counterparty in a monetary transaction is the company that makes assets available for investors. Counterparty risk, therefore, refers to risks of default from a broker in a specific transaction. In forex trading, spot contracts and forward contracts on currencies are not ensured by an exchange.

During an unfavorable performance in the market, the counterparty may not stick to contracts. Effective ways to reduce counterparty risk are to trade with only top-tier and reputable counterparties and by standardizing contracts.

Interest Rate Risks

Interest rate risks involve the profits and losses generated by instability in spreads alongside amount mismatches and gaps in maturity among transactions in foreign exchange books. 

Growth in a country’s interest rate enhances that currency’s importance, while a fall lessens its value. Value in currencies differs, and this causes the drastic change in forex price.

This risk is related to currency exchanges, options, and futures and can be minimized by setting a limit to total the sizes of mismatches.

Risk Of Ruin

The ‘Risk of Ruin’  refers to the chances of an individual losing substantial amounts of money from an investment. 

It depends on the number of assets at risk versus overall assets.

Diversification and portfolio optimization are methods formulated to mitigate the risk of ruin. It involves reducing the number of risks exposed to by having different investments. This strategy helps to maximize returns.

Country Risks

Before investing in currencies, it is essential to evaluate the economic stability of the issuing country. In some countries, exchange rates are fixed to a world leader example, the US dollar. Following this, the central bank must maintain sufficient reserves to maintain a fixed exchange rate.

A currency problem is likely to arise due to constant deficits of payment balance resulting in a reduction in the worth of the currency. This situation has a significant influence on forex trading and prices.

Country risks can be managed by:

• Balancing risk in one fund
• Buying emerging market bonds
• Holding dividend-paying stock

Conclusion 

Forex trading is one of the ways to earn money. In forex, you can either make a lot of money or lose resources. 

It is necessary to understand that many people have accumulated wealth from this foreign exchange market space and are still making money.

It is significant to find a reputable and honest broker, have enough capital, and be persistent in the learning of this trade. Once you’ve mastered this skill correctly, it will become easier to make a lot of money from it and minimize losses.