If you want to legitimately make money by practicing Forex trading, you should make yourself aware of whether or not Forex trading is legal in your country and the rules and regulations governing it so that you will always stay on the right side of the law.
So if you are a Nigeria resident who wants to make money using Forex trading but is perplexed about “Is Forex trading legal in Nigeria?” or “How to trade Forex in Nigeria,” then our detailed guide will answer all these queries for you and will provide you with the road map of legitimately starting your Forex journey in Nigeria.
So without much ado, let’s dive deep to figure out, “Is Forex trading legal in Nigeria?” But before that, let’s take a quick sneak peek at what Forex trading and contracts are.
What is Forex?
Forex trading is buying and selling one currency with another to profit from their fluctuations. It is a foreign exchange market that allows traders to buy and sell currencies at different rates. It has become a popular way to make money in recent years. Most people can start trading with little or no experience; however, some risks are involved, so it is important to understand what you are getting into before diving in.
Foreign currency transactions don’t take place in a single marketplace and are executed electronically. In other words, all transactions are carried out over computer networks globally, and the computer network links traders from around the world. Thus whether you are in Nigeria, the UK, Singapore, China, Dubai, or Japan, you can still indulge in Forex trading.
You can become a good trader with the right guidance, knowledge, and experience. As a trader, you should first have a basic knowledge of the Forex market, how trading works, and the market trends. Afterward, devise a trading strategy, pick up a trading style and method, and follow it diligently.
What are Forex Contracts?
Forex trading has become very popular over the years because it allows traders to profit by shorting or holding currencies long-term. Around 60% of all central bank’s foreign exchange reserves are held in US dollars, making it evident why it is widely regarded as the most popular currency worldwide. But other currencies are also traded in Forex, like the Euro, pound sterling, Yen, etc.
A Forex contract is an instrument that allows people to buy or sell foreign currencies against the Dollar at some fixed price. It allows you to speculate on the price of foreign currency, and the investors can either gain profits or incur losses depending on the market’s currency value fluctuations.
For instance, if a trader holds a long position for the EUR/USD currency pair, he speculates that the value of the Euro will increase against that of the Dollar in the near future. He will be able to make profits if the Euro’s value increases.
It is worth mentioning that the forex market is highly volatile, so it can be difficult to predict what the future will hold for a particular currency. If you want to make money with Forex, you need to understand how the market works to profit from any fluctuation in the value of a currency. You also need to be able to take advantage of these fluctuations if they do occur by buying or selling the currency pairs accordingly.
Once we have understood what Forex trading and contracts are, let’s address the elephant in the room “Is Forex trading legal in Nigeria?” along with “How are Forex markets regulated in Nigeria?”
Is Forex Trading Legal in Nigeria?
Yes, Forex trading is legal in Nigeria, provided that you abide by the rules set by the regulatory authorities. Nigeria does not have strict regulations for Forex, but traders must follow certain rules and regulations to ensure they do not break any laws. Thus, it is legal in Nigeria as long as it does not involve fraud or manipulation.
According to the legislation, residents of Nigeria must pay the taxes when trading Forex, and not only are they applied to the local brokers but also in conditions if your broker is registered in some other country or even if the capital of the investor or trader is present in accounts abroad. It is worth mentioning that according to Nigerian regulations, the 10% capital gains tax is typically imposed on all gross earnings made by Forex brokers.
Can Nigeria Residents Trade Forex?
Nigeria residents can trade Forex, provided they abide by regulations and refrain from fraudulent or illegal activity. Forex is a global financial asset that people from all over the world can trade in. Forex traders must have an account with the forex broker before starting trading. This account should be linked with a bank account, and you should be able to withdraw your money anytime.
How are Forex markets regulated in Nigeria?
Generally, regulation of foreign exchange markets is a complex process that depends on the jurisdiction in which they are located. Some countries have strict regulations. In other countries, there may not be many strict regulations governing forex trading. However, there are still certain rules that traders must follow, such as knowing and abiding by the local laws and not manipulating the market.
The formal body in charge of regulating the financial markets in Nigeria is the Central Bank of Nigeria. However, it focuses mostly on overseeing the activities of banks and other significant institutions. Thus, it pays minimal or no attention to the retail online Forex trading.
Thus, when it comes to Nigeria, there is no specified government body regulating online Forex trading in the country. No doubt that taxes are applicable on the Forex traders and brokers, which they have to pay, and along with that, the brokers also have to get a license for exercising their services in Nigeria, but as it is a developing Forex market, it does not have strict rules and regulations.
It is worth mentioning that when it comes to the online Forex market, many international brokers and brokerage firms work in Nigeria through their branch offices, local affiliates, or referral brokers. Each of these international brokers is regulated by international authorities and commissions. For instance, the brokerage firm HotForex is regulated by the Financial Conduct Authority (FCA) of the UK, the Financial Sector Conduct Authority (FSCA) of South Africa, and the Cyprus Security Exchange Commission (CySEC).
If you want to start Forex trading on the right foot with right guidance, you can read our guide on How to find a mentor for Forex trading here.
Main Participants in Foreign Exchange Market in Nigeria
The main participants in the Foreign exchange market in Nigeria include
- The Central bank of Nigeria (The main body to govern and regulate the Forex market)
- Commercial banks (Exercise the authority given by the Central bank of Nigeria to deal with foreign exchange)
- Oil companies (Big participant in the Forex market as the sale of petroleum goods bring in a large sum of foreign currency)
- Authorized buyers (Bodies authorized by the Central bank of Nigeria to buy foreign currency)
- Authorized dealers (Bodies authorized by the Central bank of Nigeria that can sell foreign currency)
What are the Laws Governing Forex Trading in Nigeria?
Certain rules and regulations regulate the offline Forex market, but the online Forex market lacks such regulations. Some of the laws governing offline Forex exchange markets in Nigeria include
- Central Bank of Nigeria Act of 1958
- Exchange Control Act of 1962
- Foreign Exchange (Monitoring and Miscellaneous Provisions) Act of 1995
- Investments and Securities Act of 2007
- Banks and Other Financial Institutions Act of 2007
How do the Nigerian Regulations differ?
Forex regulations differ in each country; the main difference is how they are defined and regulated. In some countries, Forex markets are bound with more strict regulations, while in the developing markets, these rules and regulations are often less strict. Security deposit prerequisites, available leverage, and investor securities are some areas where Nigerian regulations differ as they are not well regulated.
For Nigerian forex dealers, the lack of rules might be advantageous in several ways. For instance, when it comes to the brokers, they are not constrained in the amount of leverage they can provide to traders on their Forex trades as they can even increase the leverage to 1:1000, which won’t be otherwise possible in countries with more strict regulations. Moreover, as Nigerian regulations do not forbid using CFDs (contracts for differences), brokers are free to offer CFD trading.
On the other hand, the lack of regulations comes with inherent dangers and leaves traders or investors more prone to scams and fraud.
Now, once we have discussed “Is Forex trading legal in Nigeria” let’s discuss the problems that Forex traders face in Nigeria and the common forex scams.
Problems Forex Traders may Face when Trading in Nigeria
Forex trading is not an easy endeavor; on top of that, trading in an unregulated financial market comes with many dangers. Moreover, if you are new to trading, then you are more at risk of making mistakes or falling for scams. Irrespective of the fact that trading is legal in Nigeria, the following are some of the problems beginner Forex traders may face when trading in Nigeria.
- Broker Scams
- Lack of knowledge
- Trading on your emotions
- Risking more than you can ever afford/Overtrading
- Not considering all possible outcomes
- Mistaking volatility for risks
- Poor risk management
What is a Forex Scam?
Forex trading is a highly risky and volatile business. Traders are often lured into the business by promises of big returns on investment, that they will make a huge profit overnight. Still, most of the time, there is something shady going on behind the curtains of these seemingly good opportunities. But the traders usually do not consider the risks involved and the hidden red flags.
There are many different types of scams that you can get caught up in when trading Forex, like Ponzi or pyramid schemes, manipulation of sheets, software scams, boiler room scams, etc.
All in all, most Forex traders are not aware of the fact that they are being scammed. They think they have more money than they really do, and the only way to avoid this is to educate yourself on the subject and watch out for scams in your trading.
Most Common Forex Broker Scams
Undoubtedly, Forex trading is lucrative, but it can also be a very risky business. There are many scams in Forex trading, and it’s important to know what you are getting into before you make any trades.
The forex broker is a financial institution with the main objective of providing its clients with the best possible investment rates. However, many scams are being perpetrated by some of these brokers. Two of the most common Forex broker scams include front running and spoofing.
We can see the front running in Forex trading as a major issue. The front runner is usually a broker taking advantage of their insider information to make money on the market. What they do is that they already have insider knowledge about the potential trade that their client is going to make, so what these brokers do is that they enter that trade even before the client and make a profit from it.
Let’s understand this whole process with the help of an example. Suppose a broker has a client A that will purchase a large number of shares or, in the case of Forex, large amounts of a particular currency.
Now as the broker knows about this trade and is well aware that such high transaction will result in the price fluctuation of that currency pair (with high demand, the prices of the currency tend to increase in the market), so what he does is that he also places his order for that particular currency pair just before that of the client’s order. In this way, when the market sees a rise in the value of that currency, the broker can make profits out of it.
Some traders or brokers use spoofing to manipulate the market, making their currency pair of interest more attractive to other traders. They place a high bid on the currency pair and make the other traders believe that there is high demand for that particular currency, while in reality, it is just a false market manipulation.
Let’s understand it in more detail. So a spoofer will place a high bid for a particular currency pair but has no intention to carry out that trade (the spoofer will cancel the order before execution). This high transaction will create the illusion that the demand for that currency is high in the market. So more of the traders will be attracted towards it.
All in all, Forex trading involves a lot of risks, so it is crucial to be aware of these scams and make sure that you are not caught up in them.
If you want to learn more about how to legally avoid tax trading Forex, you can read our guide How to avoid tax trading Forex.
What are the Warning Signs of a Fraud?
It is always better to be safe than sorry, and no matter how lucrative the Forex trading seems to you, you should not just enter it blindly. Rather you should be cautious about your moves and mindful of whom to trust. Following are some of the possible warning signs of fraud, and if you happen to stumble upon anything suspicious, think of it as a red flag.
- First, there is no shortcut to success in Forex, and if you happen to stumble upon a person or company claiming instant riches or something too good to be true, then my friend! That is the first sign to be cautious, as many fraudsters use this trick to trap people, especially those new to Forex.
- The fraud brokers or salespeople want you to take the risk and invest your money with them in hopes of making a quick profit. Unfortunately, there is no such thing as a quick profit in the financial markets, so these dishonest companies will try and make you believe that they can offer you investment results that are only good for short-term profits, so be cautious when dealing with them.
- Suppose you come across a large sum of money, especially for retirees looking for a good investment opportunity to use their retirement funds. In that case, it is always good to be extra cautious because such people are the prime targets of fraud and tricksters. It is your hard-earned money, and you should decide wisely whether the person offering you their services is trustworthy enough or not.
- It is always better to be cautious about the random phone calls you receive about certain investment opportunities, especially if you do not know the salesperson or if it is some out-of-state salesperson calling you.
- As the tricksters want immediate access to your money, you should be cautious with investment if some salesperson is putting extra pressure to convince you to release funds immediately.
- Moreover, it will be best if you are not so naive as to think that all brokers are honest; however, many of them are. The bad brokers might try to mislead you by giving you a false picture of their service or by promising you higher profits than what you can expect from your trading activity. Because of this, you need to know what kind of broker you should choose and avoid scams from them.
All in all, no matter if you are an amateur who is just getting into Forex or an expert with years of experience, you should always be smart with how you want to use your money, how you want to invest it, and who is the broker or brokerage firm that you trust with your money. If anything seems shady, it is better to be safe and leave such a trade.
How to Choose the Right Forex Broker?
So, now that you have understood “Is Forex trading legal in Nigeria,” you would have already known that choosing the right broker is also an important step in your trading journey. Choosing the right broker is important for any trader, as it can make or break their trading experience. So, how do you choose a broker that will suit your needs?
If you are new to forex trading, you should start with a demo account. Demo accounts allow you to practice trading without risking your own money. You can also use them as a learning tool and familiarize yourself with the trading basics. As for choosing a broker, there are several factors that you should consider before signing up with any company.
- Some brokers charge higher commissions and transaction fees than others, which should be addressed. Moreover, it will help if you also look for the threshold amount (minimum) that the particular broker wants you to invest initially. Apart from that, you should also consider the fees the broker charges for different operations like the annual fees, inactivity fees, subscription fees to the trading platform, and fees for the market data, etc.
- Make sure that you can trade with the broker 24/5. You don’t want to be stuck waiting for an opening or closing time when you need to make a trade quickly.
- It will help if you also read reviews online about the broker before making your decision. It will help you determine if other people have had positive or negative experiences with the brokers.
Which Forex Brokers are Legal in Nigeria?
Following are some of the Forex brokers that are legal to offer their services in Nigeria
- FXOpen (Excellent rating by traders)
Offers minimum account size of $1, leverage can be as high as 1:500, and supports MetaTrader 4, MetaTrader 5, and TickTrader trading platforms.
- Pepperstone (Excellent rating by traders)
Offers a minimum account size of $10 and supports MetaTrader 4, MetaTrader 5, cTrader, and TradingView trading platforms.
- Exness (Excellent ratings by traders)
Offers minimum account size of $1, leverage can be as high as 1:2000, and supports MetaTrader 4 and MetaTrader 5 trading platforms.
- BDSWISS (Excellent ratings)
Offers minimum account size of $100 and supports MetaTrader 4 and MetaTrader 5 trading platforms.
- AVATRADE (Excellent ratings)
Offers minimum account size of $100 and supports MetaTrader 4, MetaTrader 5, Ava Social, Ava Protect, and Trading Central trading platforms.
- InstaForex (Well rated)
Offers minimum account size of $1, leverage can be as high as 1:1000, and supports MetaTrader 4 and MetaTrader 5 trading platforms.
- LiteFinance (Not well-rated)
Offers minimum account size of $50, leverage can be as high as 1:500, and supports MetaTrader 4 and MetaTrader 5 trading platforms.
- AGEA (Not well rated)
Offers minimum account size of $1, leverage can be as high as 1:500, and supports MetaTrader 4 trading platform.
What are the Benefits of Trading Forex with a Licensed Forex Broker?
Following are some of the perks of trading with a licensed Forex broker
- Assurance of fair and ethical trading
- Assurance of fund segregation
- Your capital would be safe
Due to the lack of Forex regulations in Nigeria, many brokers or brokerage firms that are not duly licensed are working illegally in the country. You should do your research and check their website before choosing a broker. Thus, you should ensure that the broker you are to entrust your money to is duly licensed and is legal to provide its Forex trading services in Nigeria.
You can read how to obtain a Forex broker license here.
How to Trade Forex in Nigeria?
As a beginner, you should first have a basic knowledge of the Forex market, how trading works, and the market trends. Afterward, devise a trading strategy, pick up a trading style and method, and follow it diligently. Moreover, it will help if you first practice on the demo account to practice your strategies without risking your money and move to the real account to start trading. Following is a step-by-step guide on how to trade Forex in Nigeria
Start with a demo account
It is always recommended to start practicing on a demo account to try different strategies to find out which works best for you without risking your real money.
Choose a broker and trading platform wisely
Choosing the right trading platform and broker is important for any trader, as it can make or break their trading experience. Once you have chosen, practice and familiarize yourself with the platform.
If you want smooth connectivity and reduced latency time with your broker, irrespective of your geographical location, VPS will serve you right. You can read how to use VPS for Forex trading here.
Set up a real trading account and add funds
Complete your real trading account setup once you have enough practice with the demo account and are ready to make the switch. More importantly, ensure you understand your account settings and profile layout. The faster you understand this information, the faster you can start trading.
If you are low on funds and want to start trading Forex with a small investment, you can read, Can I start Forex trading with $100?
Understand the market conditions
It will be best if you understand the market conditions to devise a trading strategy that works best in it. You should analyze and speculate accordingly whether the market is bearish, bullish, or neutral and whether or not you should enter or exit any particular trade.
Devise a trading strategy
Trading strategies are an important aspect of forex trading. It will help if you find the perfect strategy for you and your investment plan. You can choose any trading style, like scalping, day trading, position trading, swing trading, etc.
Finding the right trading strategy seems difficult, but it doesn’t have to be. Many different strategies can be applied to trading. For example, some people use technical analysis, while others use fundamental analysis. Some people try to find the perfect strategy by trial and error, while others rely on the advice of experts.
Enter the market and Take your Position
People can take two main types of positions in this market: long and short. Your position determines how you profit from a currency’s price movement. You will hold a long position if you want to buy currency. On the other hand, you will hold a short position if you want to sell a currency in a currency pair. Whether you should opt for a short or long position depends upon market conditions and your analysis.
Monitor the Market and Close your Position Accordingly
Once you have entered a trade, monitor it closely and look for any potential signs to close the trade. You can close the trade if the market conditions align with your best interests on that particular matter.
What are the best Trading Hours for Forex Traders in Nigeria?
According to experts, in Nigeria, trading forex is best done between 14:00 and 18:00 local time as London and New York trading sessions are reported to intersect during this four-hour timeframe, thus, creating the highest liquidity in the market and a higher likelihood of making money from the right Forex trades.
We conclude our article “Is Forex trading legal in Nigeria” on the end note that Forex trading is legal in Nigeria provided you abide by all the rules and refrain from any market manipulation moves or fraudulent activities. Furthermore, we have discussed the most common Forex broker scams, including front running and spoofing. No doubt that the Forex market in Nigeria is poorly regulated, and there are no proper government institutions to overlook the retail trading activities in the Forex market; still, the traders and brokers have to pay some taxes on their gross profits in Nigeria.
Forex trading is quite lucrative, but you should have a sound knowledge of the market and the rules and regulations of your country to avoid any trouble or potential scam. We hope that by the end of this article debating on whether or not Forex trading is legal in Nigeria, you have understood all the key points you need to consider while starting Forex trading in Nigeria.
- Lessons from the evolution of foreign exchange trading strategies
- Application of neural network for forecasting of exchange rates and forex trading
- Multi-agent forex trading system
- Short-term predictions in forex trading
Is Forex trading legal in Nigeria?
Forex trading is legal in Nigeria, provided that you abide by the rules set by the regulatory authorities. Nigeria has not passed any laws prohibiting forex trading, but traders must follow certain rules and regulations to ensure they do not break any laws. Thus, it is legal in Nigeria as long as it does not involve fraud or manipulation.
Is Forex Tax-free in Nigeria?
No, Forex is not tax-free in Nigeria, and a trader needs to pay tax on his profits from Forex trading.
What are the Major Currency Pairs in Forex?
The majors comprise US dollars as a mandatory member of the currency pair, and the following are the major currency pairs in Forex.
1. EUR/USD (Euro is set against the US Dollar in this euro-dollar pair)
2. USD/JPY (US Dollar is set against the Japanese Yen in this dollar-yen pair)
3. GBP/USD (British Pound Sterling is set against the US Dollar in this pound-dollar pair)
4. USD/CHF (US Dollar is set against the Swiss Franc in this dollar-swissy pair)
5. USD/CAD (US Dollar is set against the Canadian Dollar in this dollar-loonie pair)
6. AUD/USD (Australian Dollar is set against the US Dollar in this Aussie dollar pair)
7. NZD/USD (New Zealand Dollar is set against the US Dollar in this kiwi dollar pair)
What is the best trading platform to trade Forex in Nigeria?
Some of the most popular trading platforms to trade Forex in Nigeria are
4. XM Trading Point
6. Alpari App
Overall the most popular trading platform in Nigeria is FXTM.
How can I start Forex trading in Nigeria?
1. Start with a demo account
2. Choose broker and trading platform wisely
3. Set up a real trading account and add funds
4. Understand the market
5. Devise a trading strategy
6. Enter the market and take your position
7. Monitor the market conditions and close your position accordingly.