The forex market is a 24/7 over-the-counter (OTC) market that facilitates the trade of the world’s most valuable currency pairs between two parties. Many investors see it as a lucrative investment, including those in African counties like Nigeria.
Forex trading has become a popular business in the country as an increasing number of traders seek to earn good profits in less time by investing their capital. Considered a high-risk but high-reward endeavor, it has exploded across Africa, with Nigeria being the second largest forex trading market in the continent.
With the substantial rise in forex trading, more and more forex brokers have been eyeing Africa as a region where they can expand their operations. Many foreign brokers have established their local offices in Lagos, the country’s financial hub. According to estimates, there are about 300,000 forex traders in the country.
If you are interested in trading currencies, then you must register yourself with a broker first. Choosing the right forex broker can get overwhelming as a newbie to the financial market. Accordingly, this article will outline some essential characteristics a reliable and trustworthy should possess.
Read on to discover the multiple critical factors you must consider to select the ideal broker and launch into a safe and successful trading journey.
Regulation and License
Signing up with a fully licensed and regulated forex broker registered with the Central Bank of Nigeria (CBN) is perhaps the most vital aspect of forex trading in Nigeria and elsewhere in the world. The CBN works to regulate the forex market by granting licenses to forex brokers who must adhere to strict directives and rules set by the institution.
By working with a reliable broker who is permitted to offer brokerage services, you ensure that your money is in safe hands, diminishing the risks of being exploited and becoming a victim of fraudulent activities or forex scams. You can file a complaint with its consumer protection department if there is a dispute between you and the broker. If found guilty of working against the consumer’s best interest, the CBN has the authority to revoke its license.
In contrast, if the broker has no regulatory oversight, you can never be sure if your funds are secure as they can do as they please with your investment.
The broker’s trading platform will be a vital component of your trading experience and success with the chosen broker. Not all platforms are created equal. The trading platform and software must have a built-in free news feed and possess the technical and fundamental analysis tools you need to predict and conduct trades. It should have a well-designed, user-friendly interface to enable you to enter and exit trades with ease. That would diminish the chances of costly order entry mistakes.
There is nothing more frustrating worse than wanting to close a position, only to find out that the trading platform has given up on you.
Spread and Commision
Spread is a crucial metric in the world of trading currencies. Simply put, it is the difference between the buying and selling price of a particular currency pair you are trading. It is a significant source of income for your broker and an equally major expense for you for each trade.
Usually, brokers that charge no commission make money with wider spreads. The wider it is, the less profit you will make. But on the brighter side, you will not have to pay any additional commission per trade. With that said, you must ensure that the broker does not charge commissions in addition to the spread.
Spread can be fixed and variable. Unlike variable spreads that fluctuate with market conditions, fixed spreads charge the same percentage per trade regardless of market viotality. That makes it easier for you to determine potential profits and losses. Naturally, you will want to go with a broker with narrow spreads and low/no commission.
Deposits and Withdrawals
Fast and hassle-free deposits and withdrawals are other aspects at the core of a positive trading experience with a broker.
A trustworthy and transparent broker will keep the process simple by offering you various payment options, including bank cards, wire transfers, and e-payment methods like Paypal. The perfect broker would offer instant withdrawals and not charge you for money transfers.
Margin and Leverage
Leverage refers to credit that a broker extends to you, which allows you to trade large positions with a relatively low initial investment.
Forex brokers offer different leverages varying from vary anywhere from 2:1 to 1000 1 or more. It can significantly enhance your potential to earn big profits, but it can also magnify your losses. Accordingly, you must use it with caution and go with a broker whose leverage caps correspond to your trading style and risk tolerance.
The forex market runs 24 hours a day and is a time-sensitive game. Accordingly, your broker must be available to answer your concerns and help you on time. They should offer prompt customer support and have a track record of solving their client’s queries on time; if not, you must find another brokerage service.
The lack of efficient and timely customer support could cost you a lot of money if you ever get stuck between a rock and a hard place. Make a quick call to your broker or perhaps send an email before opening an account to get an idea about the quality of their customer service and average wait times.
If you are interested in trading currencies, then you are in luck. Needing just a computer with high-speed internet and limited capital, you can step foot in the forex market begin your trading journey with minimal requirements.
However, choosing the right broker to work with is paramount. With a rapid increase in forex investments, many brokers have started to venture into the forex market in Nigeria. A little bit of research beforehand will go a long way to help you find a reliable forex broker and enhance your odds of success in trading currencies.