When it comes to foreign exchange trading, Nigeria has surprised many of its fellow African nations and the globe by embracing Forex trading at an unprecedented rate.
Some of the most convincing reasons for Nigeria’s position as the world’s fastest-growing Forex market are discussed in this article.
Reasons FX Industry Increased In Nigeria
Using an internet-based broker that offers customers trading software and competitive pricing conditions, Forex trading may be done online as the world’s biggest decentralized market.
Around 85.49 million Nigerians have access to the internet as of March 2022, making up for a penetration rate of 42 percent.
Even though Nigerians have been trading currencies since the 1970s, increased internet availability has made it possible for anybody with a computer and a reliable internet connection to participate in the Forex market.
Due to a booming financial sector, robust export industry for Nigeria’s commodities sector, and improved local infrastructure, the nation now boasts Africa’s fastest-growing economy, with a rising middle class.
The rise of the middle class has opened up new avenues for people to diversify their sources of income, and Forex trading has become a trendy alternative as both a secondary source of income and a full-time profession. It is also worth mentioning that, as it’s written here, one of the significant reasons that caused an increase in the Forex industry in Nigeria is the sophisticated trading platforms. These platforms allow customers to make their trading process more effective and successful.
Another reason why Forex is so prevalent in Nigeria is that it is easily accessible. Newcomers and seasoned experts alike may participate in this industry. Anyone may participate in the Forex market and learn to trade for nothing.
The Internet is a treasure trove of knowledge and tools from brokers and other industry specialists. This category includes anything from blogs to books to whole YouTube channels.
All traders, regardless of experience level, have access to educational resources. The availability of free demo accounts at several international brokerages makes it easy to utilize trading software as a simulator.
Users have the freedom to explore other methods, features, and the digital world in its entirety.
Other benefits include access to powerful analytical tools and knowledgeable technical assistance. Investors are protected from the financial consequences of system failures or power outages by virtual private servers.
Nigerian merchants may earn money from laptops, tablets, and smartphones if they put in the time and effort.
While Nigeria’s economy has been booming, the worldwide coronavirus epidemic and the resulting lockdowns have had a negative effect on the nation.
Forex industry in Nigeria
Several factors impacted Nigeria’s foreign currency market development, including adjustments in global trade patterns, economic, institutional changes, and structural transformations in production. Foreign exchange markets were held back in Nigeria due to its direct link to the British Pound Sterling at par and its simple convertibility. A local foreign exchange market was needed. However, foreign exchange power was transferred to the Bank of Nigeria (BoN) once CBN was established.
The dramatic spike in crude oil prices in the early 1970s led to an increase in the country’s official foreign currency earnings. The foreign exchange market boomed during this time, necessitating the management of foreign resources to avoid shortages. As a consequence of the foreign currency crisis, strict exchange controls were implemented. A thriving parallel foreign currency market arose due to rising demand and declining supply.
Internal balance could not be achieved because of the inability of the exchange control system to devise an acceptable mechanism for allocating foreign currency in accordance with this purpose. Second-tier Foreign Exchange Market (SFEM) was established in September 1986. Under the SFEM, the exchange rate for the naira and the distribution of foreign money were determined by the market forces. To expand the Foreign Exchange Market, Bureaux de Change was established in 1989.
In 1994, the Foreign Exchange Market was further reformed due to the volatility in rates. Nigeria’s central bank, the CBN, has consolidated control over foreign currency exchange rates, restricted Bureaux de Change from acting as CBN agents, and reaffirmed the illegality of the parallel market. In addition, the status of authorized buyers and dealers of foreign currency was once again granted to Bureaux de Change. In October 1999, an Inter-bank Foreign Exchange Market was introduced, further liberalizing the Foreign Exchange Market (IFEM).
Between 2002 and 2015, the Bank implemented the Retail Dutch Auction System (RDAS), the Wholesale Dutch Auction System (WDAS), and the Interbank Rate System Regime. It was necessary to conduct two auctions every week, one for the consumers and one for banks, with the RDAS intervention going straight to customers and WDAS being sold to customers. Interbank Rate System Regime was implemented in 2015, where the Bank intervenes when necessary. In response to rising customer demand, the Bank of England implemented a controlled floating system in 2016. The inter-bank FX market value of the naira is mainly determined by supply and demand under the new system.
