Domestic Forex Trading

Posted by Felix Okoli on Thursday August 30, 2012 13:2:31:

Exchanging foreign currencies for or against the naira is a cool business one can do in Nigeria if he has the capital to do it.

It basically involves buying currencies when they are attractive or cheap and then selling it when they have appreciated and again selling them before they depreciate and then buying them back again when they are cheap.

There are different categories of people involved in this business and some may be involved full time of part time but if you are asking if it there is money in it, sure there is and it's available for big players as well as small players.

Think of it this way, as at Jan 1 2000, the rate of the naira to 1 US dollar was at 99 naira and now in 2012, it has depreciated to 159 naira as at August 1. So this means that the naira has depreciated by more than 60 points! That is a huge dip for a currency and the future still doesn't seem bright so a good business man can just make money by always buying the US dollar anytime it seems to depreciate since Nigeria's naira is not catching up yet and there are no policies by govt yet to reverse the trend.

So someone can simply make money by betting against the naira with other strong currencies like the US dollar. There are many other global currencies one can trade with the naira as a domestic forex trader and make some profit from it. Think of it, if one bought and held on to the dollar since 2000, by now he would have gained 60 points and for a N1,000,000 investment(buying $10,000), his capital would have been worth about N2m as at August 2012.

How people make money from this business is not really from holding appreciating currencies for too long but in the frequency of exchanges you have made that adds up the little profit and so if you buy at N150 and sell for N155 and do this for 100 times, you would have gained N500 per dollar and for $1000, that would be about N500,000 profit. So with forex trading for or against the naira, you could make lots of money if you analyze the future well and make a lot of exchanges

Exchanging currencies requires capital, an analysis and prediction of the future as well as time frame. Prices are constantly moving up and down

Domestic forex trading is a big business in Nigeria and there are classed of providers of such service such as the bureau de changes, abokis and other small time investors.
Although one can register as a bureau the change to make it official and attract higher class clients, one can always start with a smaller investment as an individual or small business and still make profit.

A good forex trader also makes use of a domiciliary account in a bank where he can save money although there are some small forex traders who also prefer keeping their cash at home which is risky.

Why currencies depreciate
There are times when a currency may start depreciating and a time when it reaches its peak. For the US dollar, it tends to depreciate against the naira as the year winds up and before Christmas and tends to reach its peak by Easter in March or April. There are other factors that can also make a currency to depreciate such as bad market reports, falling GDP, uncertainty, govt policies and so on. So keeping an eye on the news for market updates can help you make better decisions so as to know when to buy, sell or wait.