WHY FOREX IS DANGEROUS FOR NIGERIAN SMALL-TIME INVESTORS

Although the retail online forex market is where currencies are traded online for speculative purposes, many Nigerians are aware with the spot forex market, where forex transactions are carried out with bureau de change.

There are several unusual hazards associated with the market's online form, which is transacted through unregulated brokers. Any activity carried out online is vulnerable to scams and cyberattacks, and the emergence of social media has made it simple for con artists to target a wider audience.

The DIY approach to retail trading also means less advice and input from your broker, and without the necessary information, you run the risk of making trade decisions that are not well-informed.

Retail Forex traders is to benefit from the currency pair; nevertheless, you should be aware that there are also considerable hazards involved for the reasons mentioned below.

Nigerian forex trading is not regulated.

The absence of a formal regulating authority to monitor trade activity makes forex trading in Nigeria one of the most dangerous financial activities in the world. Although forex trading is legal in Nigeria, fraudsters have taken advantage of the lack of government regulation.

MBA Trading & Capital Investment Ltd. defrauded Nigerian forex traders out of N213 billion in 2021. For allegedly mismanaging customer funds and falsely claiming to be governed by the Securities & Exchange Commission (SEC) in Nigeria, the EFCC designated its former CEO wanted.

According to allegations, MBA Trading is a Ponzi scheme that paid out older members using money from the newer members. By releasing an Official Disclaimer on the SEC Registration of MBA Capital, the SEC was forced to publicly clarify its stance and state that no trading license was ever given to MBA Capital.

Dealing with a broker who does not carry an SEC trading license implies you have no protection from the Nigerian government. As a result, you are not eligible to get assistance from the Investor Protection Fund, which was established to reimburse investors who lose money as a result of defalcation of a holder of an authorized trading license.

Brokers permit you to borrow more money than you can handle

Leverage is a loan given to you by your broker that enables you to trade with greater exposure than you have available.

Lack of regulation allows brokers in Nigeria to give you huge leverage for their own self-serving purposes, which could destroy your entire trade and leave you deeply in debt.

You would need to deposit a portion of the “margin,” which is used to open and control leverage, in order to have access to leveraged trading from your broker.

Although leverage is a two-edged sword because, due to the high level of market volatility, it may also greatly multiply your losses.

Consequently, be aware that when using leverage, even a small change in the value of a currency can lead to loses.

For instance, the Central Bank of Nigeria's (CBN) currency note redesign policy has resulted in a cash shortage, which has caused the Naira's value against the dollar to decline and external reserves to decline.

Only limited protection is offered by stop loss orders.

To minimize losses, a stop-loss order is one that you create in advance to automatically close out your open trade at a predefined price. You accept to take a particular amount of loss when you establish a stop loss.

Losses May Also Occur in Copy Trading

In the copy trading method, you imitate the moves of other seasoned, expert traders. It does have some advantages (on paper), particularly if you are a beginner, as it reduces trading time and emotions. However, there are flaws as well:

You must have enough money. You take on a master trader's leverage and stop loss when you replicate him or her. You'll be forced out of the market sooner if you don't have enough money.

The master trader you are copying has had success in the past, but this does not ensure future success.

Your positions could be harmed by a shaky network connection.

Nigeria's internet speed was part of the slowest in the world in a survey by Speedtest Global Index published in September 2022. Nigeria was placed 151st out of 182 nations in the world.

In Nigeria, telecom have service outages, which is a negative development that impedes and interrupts commercial operations, including forex trading.

Forex Trading is Very Dangerous

For novice traders, forex trading may be a risky endeavor, and there are several accounts of traders who have lost money. It is essential that you assess your level of risk tolerance before engaging in anything, and if at all possible, avoid it.