The foreign exchange market, or forex, as people affectionately call it, is the world's largest financial market. It is estimated to have a daily trading volume of $6.6 trillion.
Forex used to be the province and game of banks, hedge funds, and multinational corporations who use it to forestall interest rate risks and diversify their portfolios. But the Internet has disrupted the industry just as it did other industries.
Today, anyone who can invest money into it, even as little as $50 (25 thousand naira) and with a good internet connection, even if working from a shack, can reap gains from this market.
Daily, I get bombarded with advertising messages on Facebook and Instagram where influencers flashing gold wristwatches and the latest Lamborghinis claim that their wealth was acquired from forex and urge you to join their signal channels.
This allure to easy wealth has drawn millions of retail investors to forex who hope to become rich overnight. Many do, but many also have tragic financial stories to tell and claim to have been scammed.
This article will describe a detailed process one can use to start trading forex in Nigeria and some pitfalls to avoid.
The Five-Step Process To Start Trading Forex Today
1. Internet speed
The first underestimated consideration is the importance of the speed of the internet connection used for trading. Trading forex is a very delicate process that requires precision.
Exchange rates can fluctuate in seconds. Traders complain that sometimes they bought or sold a currency pair at a favorable price only to discover that the trade was executed on the broker’s system at a different price.
This occurrence could be attributable to the lag in the internet speed of the trader. Therefore, traders need to use a fast Internet connection that executes trades without any lag. Professionals say that when trading forex, you should make sure that your Internet download speed is at least 5 MB, and your upload speed should be at least 1 MB.
Sometimes, another consideration that goes with internet speed is automated trading. Automated trading is making use of programmed scripts to execute trades rather than doing them manually. Thus, automated trading relieves one of the burdens of staring at the computer screen, often along with the burden of loss of concentration.
For automated trading, to have time for other activities while trading is still going on, traders are recommended to subscribe to a Virtual Private Server (VPS). VPS services connect to your broker's platform and ensure that your trades are executed with fast internet speeds and without lag. By the way, VPS works 24 hours and never has any downtime.
2. Choose a credible broker.
After ensuring your Internet connection and speed are top-notch, choosing a credible forex broker is the next step. A forex broker buys and sells currencies for you.
All forex brokers give you access to the forex market on a 24 hours basis, five days a week (forex operates five days a week excluding weekends). Make sure you chose a broker who can provide you with a broad basket of currency pairs to chose from and whose spreads are competitive.
Most forex brokers now charge low fees for access to the market because the market is very competitive. Also, many fraudulent brokers are springing up every day because of the attraction of huge profits. These fraudulent ones will only dupe you of your money.
Make sure to do diligent and thorough research on brokers before making a choice. Read through the fine print in their documents. Read online reviews for any broker in your searchlight.
It would be wise to trade with forex brokers that are reputable and have an office in Nigeria. Some even allow you to trade with a naira account.
3. Register an account
After you have chosen a broker, go ahead and register an account. Financial regulators regulate most reputable brokers like the U.S Commodities Futures Trading Commission (CFTC), the U.K Financial Services Authority (FSA), and the Australian Securities and Investments Commission (ASIC).
This regulation means they will all ask for your KYC documentation, including a valid ID card or international passport, proof of residence, and a passport photograph. You will also have to submit your account details.
In addition, some brokers emphasize that the bank account you used to deposit money should be the same as that used for withdrawal. Otherwise, you have to inform them beforehand of any change.
These precautions are in place because forex can be used for illegal transactions and money laundering, so regulators want to make sure forex brokers play according to the rules. In addition, they want to be able to identify the source of any questionable transaction.
4. Fund your account
The next step that makes many persons afraid is that of funding the registered account. Forex is about making or losing money. In forex, when one party makes money, another party has lost money. It is as simple as that.
It is frustrating to be on the losing side, which is why psychology is paramount in forex trading. Beginners to forex trading shouldn't start with a live account. A live account is an account with real money. Instead, they should start with a demo account.
A demo account is an account that has virtual money. All forex brokers provide demo accounts. You use a demo account to practice and hone your strategies.
Some brokers limit the tenure of your demo account because they want to urge you to start investing as quickly as possible, while many will allow you to trade with a demo account for as long as you wish. When you are skilled at your strategy using a demo account, you can go on to the next and final stage.
5. Fund your Live account
The last stage is that of funding your live account with real money. The currency you use for trading depends on the account types specified by your forex broker. When I ventured into forex trading for a brief period, I traded with a dollar account.
However, some brokers in Nigeria provide you with a naira account. This stage is where you become a professional forex trader and make a living from forex, or you join the 77 percent of traders who lose money and decide that forex trading is not for them.
Some Facts To Consider About Forex While Trading
I will now outline some key traits that make for success in forex trading.
Every successful forex trader is disciplined. They all have a strategy, and they never trade against it. While forex trading, there is the urge to want to trade often.
It is called the fear of missing out. But, if you take unnecessary trades, you will end up blowing your account. It is only by following your strategy that you can make money, and that requires iron-clad discipline.
You make a profit or loss based on the number of pips you make. Some forex traders want to make massive money from little pips trade with high leverage, bringing out their greed. Avoid greed. While trading, use sound money management.
If you don't know about money management, there are tons of books about it on the Internet. It can make you a career trader or among the has-beens who were disillusioned by forex trading.
Only trade liquid pairs: Liquidity is the ability of a trader to sell a position.
This can only happen when the trading volume is high. A good trader must understand the best currency pairs at each market. Forex is traded globally, but there are about four renowned markets where currency pairs are traded at high volumes: the New York market, the London market, the Sydney market, and the Tokyo market.
Understand the currency pairs that go well with each market and concentrate on those pairs. For example, the EUR/USD pair is a good currency pair that works well for almost all markets and is very liquid. If you master this pair, it can make you a considerable amount of money in a short time.
Set up automated trading systems
I advise beginners to go with automated trading systems. It removes the aspect of greed and emotions from your trading. But because of the prevalence of fraud, it isn't easy to find a good automated system.
Ask for a reputable system in forex forums that are scattered all over the Internet. Go for those that give you a free trial period and the ability to back-test the strategies. With an automated trading system, you can have the time to attend to other things rather than be glued to the screen watching the charts.
The forex market is very volatile. A strategy that makes money today might become obsolete tomorrow because many factors in the forex market influence how it operates.
So, if you want to remain in the forex market for a long time, you should be continually educating yourself. It would be best if you avoided greed, while discipline should be your watchword at all times.