Online trading can simply be defined as the act of buying or selling securities and financial instruments with via internet enabled mobile device or computers. The major markets where you can easily trade online in Nigeria are Currency, Stock, Contract for Difference (CFDs), Cryptocurrency, and others.
One of the merits that the digital revolution has brought to Nigeria is access to online trading.
You can engage in online trading through an investment platform and registered broker. The type of broker you opt for depends on your choice of trading Instruments. But the ease of access has also been accompanied by rising scams related to investing & fraud brokers.
Basic overview of online trading in Nigeria
For now, the only online trading market that is regulated in Nigeria is the stock market, which is regulated by the Securities and Exchange Commission (SEC). Forex Trading and CFDs are not illegal in Nigeria, but they are not regulated; making them extremely vulnerable to scamming.
The position of Cryptocurrency is worse in the sense that its operations have been banned by the Central Bank of Nigeria (CBN). This means that it is illegal to engage in the trading of cryptos in the country.
But, it should be noted that despite the ban, the activities of Cryptocurrency trading keep on increasing in Nigeria to the consternation of stakeholders. For instance, Nigeria has the world’s highest rate of Cryptocurrency adoption & crypto users in Africa have surged in 2021 as per the latest reports.
How does online trading work?
Potential traders should note that the major aim of online trading is to earn money which can be achieved by using the price fluctuations in the market.
Take for instance, a trader can buy a security or Instrument for ₦500 and then sell it for ₦510 if the price of the traded security goes up.
One important fact about online trading that you need to swallow is that its speculative nature makes it very risky in practice and there is a high possibility of losing some of your money. You can experience a loss when the price fluctuation of the security does not move in your favour.
For example, you have bought a security for ₦200, if the price of the security goes down, you now sell it at a lower price of say ₦180. You will now make a loss.
Consider these points in your Trading Platform
Is The Brokerage Firm Licensed in Nigeria?
The answer to this question depends on the trading Instrument you are dealing in.
First thing to understand is, if you are dealing with a registered brokerage firm, the risk of being scammed would be very low because there would be a high level of accountability and transparency as the broker knows that their activities are being monitored.
As stated earlier, Forex Trading, CFDs and Cryptocurrency trading are not yet regulated in Nigeria. So, many of the brokerage firms offering these products are foreign based, but operating in Nigeria. However, they are not officially recognised by Nigerian financial regulators which makes the Instruments open to abuse.
Unlike Forex and CFDs, stock trading is regulated by SEC in Nigeria which means that Stock broking firms are licensed by SEC and recognised by the Nigerian Exchange Group (NGX) to trade on behalf of clients on its floor.
The stock exchange frequently releases a list of active and inactive stockbrokers which you can choose from to trade. It is highly advisable to check this list occasionally because the group frequently amends it with a view to capturing active and inactive stockbrokers.
There are many illegal online brokers operating in Africa.
As per a report and research by Forex Brokers SA on online trading in Africa in 2021, they found that there are 100s of scam brokers related to forex, crypto & CFDs who are promoting their illegal platforms in Nigeria. And, many Nigerians are falling victims to these scam brokers. Most of these fraud brokerages generally promise users high returns from online trading.
There are some forex brokers in Nigeria that offer CFD Online Trading via their apps. But all these brokers are foreign regulated brokers accept Nigerian clients. So, traders and the general public must avoid trading with unregulated brokers, or instruments that are not yet regulated in Nigeria.
What Fees will you be paying to your Brokerage Firm?
It should be noted that the broker you choose will charge you a fee for executing your trades. The fees may vary and also depend on the security you are dealing in.
Lots of brokers charge fees such as spread, commissions, swap fees, fees on deposit/withdrawals and so on. The fees is an important factor a trader needs to carefully consider before signing up.
This is basically the difference between the bid price and the ask price of a security or asset.
For instance, the typical spread for EUR/USD with a broker could be 1.9 pips. With this, if a trader places an order for 1 Standard lot, then the total trading fees will be $19.
Also check if there is any extra commission per trade.
Some stock brokers in Nigeria can charge higher commissions than others. While some CFD brokers offer spread only trading accounts, while others also have trading accounts with Raw spreads plus commission per lot.
Some forex brokers charge this fee per lot with their Commission based account. With some brokers, the total trading fees are spread + commission, depending on the type of instrument that you are trading.
So, you must check the fees that you will pay for trading.
#3. Swap Fees
This fee is charged by forex brokers for overnight trades. The fees are based on the discretion of the brokers. Some brokers charge very high Swap fees, while some charge lower fees.
When you use a currency with a lower interest rate to buy a currency with a higher interest rate, you are borrowing at a lower interest rate to invest at a higher interest rate. The broker credits your account with the interest rate differential.
For example, EUR/USD where USD with a lower interest rate is used to buy EUR with a higher interest rate.
On the other hand, when you use a currency with a higher interest rate to buy a currency with a lower interest rate (for example using EUR to buy USD), your broker will debit you with the interest rate differential.
How is the support given by the Broker?
One of the most important factors that should be considered when choosing a brokerage and its platform is the standard of customer support.
For instance, a trader might be in need of help as regards some specific areas while executing a trade. A good broker should have 24 hours customer care lines and email or video chat support during the week.
The brokerage firm should also be able to offer excellent and efficient customer service as well. As a trader, you don’t want just promises, you need practical problem solving and swift response to all Issues raised. To find a broker that will offer you such services, do some background research before choosing one.
You can test the support ability of a brokerage firm at the embryonic stage of the trade. You should study how prompt they respond to issues and if they are able to solve your problems. If you are satisfied, then it is a positive sign that the broker’s support is okay
Is the platform safe and secure?
It is highly important to have a trading platform that will ensure the security and safety of your account details and other confidential information crucial to your account.
Most of the brokers will offer you multi-platform access which gives you the ability to transact trade from anywhere and from any device. Some brokers only allow you to trade on their web-based platform. Whichever one you prefer, safety and security of the platform is paramount.
Also, you should check whether the broker’s app is secure. Was there any security vulnerability reported in their platform? Were there any data leaks?
There are some brokers that also operate in Nigeria like FBS broker, and the data of their customers was leaked because of security flaws. It was also found in the research that they had stored unencrypted passwords in their database.
How accessible is the platform?
You should note that trading platforms have different requirements to qualify for their use.
Take for instance, a day trading platform may require the traders to have at least N500, 000 in equity in their trading accounts and have approval for margin trading. On the other hand, options platforms may need approval to trade various types of options before being able to use the platform.
Some traders in Nigeria prefer third party platforms like MetaTrader platform. But some online brokers don’t offer third party platforms, and they offer their own proprietary platforms. So before signing up, find out whether the platform of your choice is available or not.
Finally, every Nigerian trader should note that a trading platform goes far beyond just the software that the broker offers you. The safety of your funds, accessibility and customer support that accompanies it and platform functionality is the key.
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