Nelson Ugwuagbo, Abuja
According to the National Bereau of Statistics, Nigeria has an unemployment rate of 33% and youth unemployment of 42.5%. Also 4 in 10 Nigerians are said to live in poverty.
This high rate of joblessness and poverty has led many Nigerians to seek alternative means of making money.
This search has thus led to an increased interest by Nigerians in forex Trading.
FOREX TRADING is the buying or exchanging of one currency with another. Forex is normally traded in pairs e.g Eur/Usd where one currency is being sold while the other is bought.
Foreign exchange occurs globally and it is the mechanism that facilitates international trade and commerce.
“If a Nigerian wants to a shoe that is produced in the United States, he or she must first convert their naira to dollars before that trade can occur”.
Forex is traded on a global exchange market. It is open 24 hours a day and five days a week, although offline forex exchange happens 24/7 statistics shows that the forex market processes transaction of $6.6 trillion daily.
Previously, forex could only be traded by governments, banks and big institutions but since the advent of the Internet, individuals can now trade forex electronically over the counter.
The recent rise in forex trading interest among Nigerians begs the question of what the advantages and disadvantages of forex trading are?
The various pro’s and cons of trading forex for Nigerians is discussed below
The advantages include
1) Curbing Unemployment: The barrier of entry to start trading forex is low hence anyone can become a forex trader. This is therefore a means for people to keep themselves gainfully employed. The potential to make desirable profits also encourages an individual to put in enough hours in learning all the nitty gritty of the process.
All these activities help rid an individual of idleness and unemployment.
2) Potential for huge income:
People buy and sell currencies worth more than 6.6 trillion dollars daily on the forex market. Good positioning and making the right market decisions can make an individual huge profits. Although the forex market is hugely volatile, it is this volatility that enables experienced traders to gather huge profits from the market.
Forex trading is done 24 hours a day therefore money can be made at any hour.
In addition, trading the currencies directly is not the only means to make money as individuals can also become brokers, forex tutors, financial advisers, or forex software developers. The opportunities to make money is therefore limitless.
3) Hedge against inflation and naira devaluation: Forex can help mitigate the negative effects of inflation and naira devaluation in Nigeria. Since 2015, price of goods have increased by 20% per annum and the naira has lost over 500% of it’s value to the dollar.
With forex, one can buy a stable currency like the dollar, pounds or Euro and hold it till it appreciates against the naira. They can then sell the currency and make huge profits. This is know as long term trading.
As with most things in life, whatever has an advantage also has a disadvantages. The disadvantages of forex trading in Nigeria includes:
1)High Chance of loosing money: The forex market is very volatile and liquidation can occur in seconds. This is not helped by the fact that most forex brokers offer huge leverage that increases your chance of profits or looses exponentially.
The forex market is volatile because of changing conditions and events throughout the world. A forex trader who is not alert can lose all their money in seconds.
2) Scam Prone: while forex trading is in itself a legitimate business, a lot of sham platforms have come out to lure unsuspecting Nigerians into depositing their money with them.
After these deposits, those scam platforms make it impossible to withdraw both your initial capital and/or profits by using sham terms and conditions.
Some even go as far as closing down and running away with the money of their clients.
Also, many Ponzi investment schemes claim to trade forex as their source of revenue. These Ponzi owners offer high ROI to Nigerians but immediately shut down when they are unable to meet such targets.
3) Difficulty to Master: Difficulty to Master:
Forex trading involves learning a wide range of things which includes: world events, macroeconomics, how countries relate with each other, fundamental and technical analysis amongst others. In other to become profitable, a forex trader must learn and master all these complex subjects.
The technical knowledge involved in forex trading is so steep that most people give up after months without making any money.
In conclusion, forex trading presents an opportunity for the average person to make money. It has low barriers of entry and can be done at anytime.
However, those interested in becoming forex traders must be mindful of the disadvantages in other not to be caught unprepared.
Finally it is important for forex traders to adhere to this age long advice, “only trade or invest what you are able to lose”.
