The financial markets are not limited to exchanges of stocks and shares. National currencies, such as Euro or USD, may also be bought and sold for a profit margin. With the Forex market, anyone can try their skills and foresight, whether in Europe or South Africa. Our guide will explain the concept of how to trade Forex in Nigeria. First, it is worth looking at the basic principles.
The Nature of Profitability
The term itself is short for “foreign exchange”, and thus denotes the process of buying and selling currencies, as well as the dedicated marketplace. This community is truly global, with transactions reaching 5 trillion US dollars every single day. This scope is larger than that of any other financial market.
Since traders operate on different continents, somewhere in the world national currencies are bought and sold at any given moment. The immense popularity of such trading is based on the profit gained by shrewd players.
Who Participates In the Process?
Individuals, known as retail traders, account for a fraction of the overall volume of transactions. Most currency operations are conducted by institutional players, such as hedge funds and major banks.
In order to enter the trading, sole players have to use the services provided by intermediaries known as brokers. A broker is a party supplying clients with specialized software and educating them on the principles of the exchange. In Nigeria, one of the most trusted and well-established brands is Alpari.
Basics of the Operations
If you have ever travelled abroad, you know how the currency exchange rates work. The value of each national currency may rise or drop depending on a host of factors. For instance, falling oil prices usually cause the Russian rouble to tumble down. From domestic monetary policy to geopolitical shifts, the exchange rates are always in flux, which makes a profit from trading possible.
Crucial Indicators to Learn
All currencies are traded in pairs. One of the most popular ones is EUR/USD, where the first element is the base currency and the latter is referred to as the quote currency. Basically, it shows how many US dollars one Euro costs. For instance, the value of 1.08 means the price is 1 dollar 8 cents.
The second essential aspect is the presence of two prices at the same time. These are the “ask price” (e.g., 1.0918) and the “bid price” (e.g., 1.0916), where the former is applied when a trader buys a certain currency, and the latter when they want to sell it off.
The first indicator is always slightly bigger than the second. The difference between them is known as the “spread”. Finally, each 0.0001 is called “pip”. Hence, the spread of 0.0002 is regarded as “2 pips”.
The Logic of Decisions
Basically, like in the world of securities, you aim to buy low and sell high. This means you purchase currency while the value is low, and wait for it to rise before selling. These kinds of trades are known as “long position”. The opposite situation is a “short position”. This happens when you sell a certain currency expecting it to get cheaper, so you can buy more of it back.
The Convenience of Copy Trading
If you are only gaining experience and not yet willing to take risks, you can always delegate the job to professionals. This option will link your funds with those of a finance expert, whose subsequent trades will be replicated in your account as if you were conducting the same operations on your own.
Usually, there are certain limits on the portion of funds you may pass on to the copied trader. For example, if you trust them with $1,000 and they gain a profit of $500, you will become 450$ richer whilst they receive $50 in reward. This is a win-win scenario, and it is extremely helpful for rookies or even veterans who have no time for thoughtful Forex trading.