Foreign exchange trading in the spots speculative segment boasts some $125m on the retail segment & $5bn on the institutional side of the business with nearly twenty three thousand retail traders spread across the length & breadth, looking for opportunities to make a quick profit from their naïve speculative guesses. However, ten (10) years ago when currency trading first came in on the retail side, it was known as wonder banks because several unregulated companies that lack asset management licenses & whose business activities lacked oversight were promising & paying in most cases returns on investments that defied market cycles. In 2008, with the crash of the stock markets, the regulators inclusive of the Central Bank of Nigeria & Securities & Exchange Commission clamped down on unregulated speculative traders known as wonder banks, who had funds heavily invested in the spots FX markets, freezing liquidity and assets and rendering investors hanging. This fetched a negative reputation for the spots retail FX business in Nigeria that for the most part until recently is seen as advanced free fraud without risk management frameworks, proper regulatory license and low capital base to cover up the depths of the markets.
Foreign exchange trading in the spots retail segment in Nigeria has steadily grown over the last ten (10) years as high networth individuals and companies see the markets as a means of alternative revenue streams or a means to take funds out of Nigeria with structured limited power of attorney without the monitoring of the Nigerian financial intelligence unit (NFIU), Economic & financial Crimes Unit (EFCC) or NOTAB. Traders on the retail side of the business that make up 97% of volumes for the Nigeria Forex Brokers, usually with deposit volumes of $100-$5m are generally naïve, undercapitalized, lack risk management structures, lack proper equipments and facilities, lack an understanding of liquidity on spreads, commissions, compliance checks of good brokers, dealing patterns of fraudulent brokers in the markets. They are overly obsessed with the desire to make profits at the risk of losing capital. FX Brokers believe this is their gold mine to tap into the growing population of traders between 18-40 who see FOREX as a magic wand from above to make hard foreign currency easily by playing poker bets on the markets. Forex Brokers in Nigeria love the fact that there are no structures to guide and govern the budding industry in Nigeria inclusive of fudiciary rules, minimum capital requirements, investor protection, anti-money laundering rules, asset compensation framework as is established in the republic of South Africa by the financial services board who acts as the ombudsman responsible for oversight.
Therefore with as little as $200,000 in investments, most brokers in Lagos have set up offices, employed an average of five (5) to twenty (20) staffs mostly saddled with bringing in deposits, creating new accounts, organizing trainings, liaising with foreign offices. By using targeted marketing channels with this little capital, most brokers can on board as much as $10m in deposits over a period of 12-18 months, make huge money in dealing from the counter party losses of amateur traders, repatriate most of the deposit offshore without any reporting or correspondence to a regulator. This presents a little risk, big profit ticket to money making from an economy that is recently being named as the largest economy in Africa based on the rebasing of its GDP, has the largest population on the continent with 170 million people, has the third largest stock markets in Africa only after Republic of South Africa & Namibia, has an internet penetration that I close to 30%. Unlike the Republic of South Africa that has well laid out structures for spots Forex brokerage through the financial services board regulating the business & has the likes of Standard Bank, Barclays ABSA offering leveraged products on the markets to speculate on exchange rates, Nigerian banks are not looking forward to the opportunities that exist in spreads, commissions, dealing profits instead Nigerian banks are making treasury profits in mark to market through the platforms of the largest FX banks in the world as their liquidity providers & market makers.
Until the exchange rate crises, inflation quagmire, crude oil shock that is rattling liquidity at the Nigerian Stock Exchange eases and aligns the focus of the Regulators like Securities & Exchange Commission, Central Bank of Nigeria, the spot retail FX business in Nigeria is on a bullish trend and remains the mainstay of foreign brokers.
About speaker: Kelvin Emmanuel is a Nigerian Forex expert and the founder of fxyear.com.
