Nigeria's Retail Forex Trading Market is Emerging - Report

Until recently, big banks, corporations, and governments were the only participants in this market. But this has changed now with the rise of OTC brokerages & easing of regulations in Europe & elsewhere, which has made possible for the individual investors to take part in the FX market.
17 June 2019
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Forex market has been around for quite some time now, and it is one of the largest financial markets in the world. It involves trading in the currencies & speculating on their daily fluctuations. Not until recently, big banks, corporations, and governments were the only participants in this market.

But this has changed now with the rise of OTC brokerages & easing of regulations in Europe & elsewhere, which has made possible for the individual investors to take part in the FX market.

More & more brokerages are opening up in Europe, US, Australia & Africa, that are allowing individuals & small investors to trade in the forex market by providing them different trading instruments, options to trade custom lots & various online trading platforms that can be accessed from any device using internet. This has given rise to a developed Retail FX Trading ecosystem, where even small individual investors can be part of a global finance market & make money from it. Most of the forex brokers have very low initial requirements & individuals can start trading forex with a few hundred dollars.

Same has been the case in Nigeria, where individuals & investors are increasingly getting attracted to investing in the Forex market. But where does the market currently stand right now?

Demand for Retail FX in Nigeria is growing

Estimates on retail forex trading in Nigeria  put that, we may have around N350-450 Million Naira daily volume in the FX market and it is on the rise. Investor interest in Forex has been steadily growing over the last 10 years in Nigeria, and there could be as high as 300,000 retail FX traders in Nigeria of which 25-30% are actively trading in the FX Markets every month.

Based on "FX net deposit volume" reports by Forex trading platform research firm CPattern, Nigerian forex traders on an average make deposits of around $514 quarterly. This figure is only the 2nd highest behind South Africa ($742), in terms of net deposits made by traders in Africa.

So what is attracting so many Nigerian investors into Forex trading? These investors are likely choosing trading in Forex markets over local equities & derivatives because of the lesser liquidity & lower movements in the local financial markets as compared to FX.

FX market offers them more investment opportunities & freedom because of its 24 hour operation, wide options of currency pairs that they can trade, high liquidity in different trading sessions, option of leverage to maximize returns, easy accessibility through internet etc.

Many Brokerages are opening in Nigeria  

The retail FX growth in Nigeria has not gone unnoticed by the leading FX brokerages around the world, and they are very keen on investing in the Nigerian Retail FX Market.

This growth is seen as an opportunity by many brokerages in Europe & elsewhere as the market in Nigeria has huge growth potential owing to its large youth population who see FX Tradingas a way to their financial freedom; also the market in Nigeria is not as restrictive as it is in Europe where ESMA regulation has put very strict caps on leverage for contracts-for-difference (CFDs), FX instruments and cryptocurrencies. The European Regulator even has changing guidelines on marketing for the brokers. But such regulations are more liberal in Africa (or even absent in some countries), making the market very attractive to these brokers, who are increasingly opening their offices in Nigeria & South Africa.

Many large regulated FX brokerages are now in Nigeria: like Hotforex, Avatrade & FXTM who have also setup their local offices in major cities like Lagos & Abuja. Some of these brokerages even accept local bank payments for ease of funding for the Nigerian traders. These brokers are investing heavily in spreading their brand awareness & also the overall FX industry. They also regularly held seminars & webinars to offer free Forex Education to the interested FX investors.

Marketing by these brokers is attracting even more Nigerians to Forex trading.

Need for Local Regulation

Investing in FX market is not illegal but yet it is unregulated in Nigeria, and there are no guidelines for forex brokerages operating in Nigeria. The leading forex brokers operating in Nigeria  are currently regulated by regulators of South Africa (FSCA) & UK (FCA). But there are also many unregulated brokers in Nigeria (even more than regulated ones), which has made Nigerian investors prone to scams & bad practices by the brokers.

In case of FCA & FSCA regulated brokers, the investors are protected by the policies of these foreign regulators and the brokers have to abide by their strict policies; but sometimes the grievance redressal against the foreign brokers in case of disputes is often quite a tedious process as it involves a foreign body rather than a local one. Whereas, in the case of brokers operating in Nigeria without any regulations, traders have no protection with them at all.

This makes the need for local regulation in Nigeria even more important. Nigerian Regulator SEC's last announcement in 2018 suggests that we may see a framework for regulation on FX trading in Nigeria sometime soon. But for now, FX investors in Nigeria are advised to trade with foreign regulated brokers.

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