What are the key features to look out for when you’re looking for an online trading platform that will protect your funds?

Online trading is simply the act of purchasing or selling securities or financial instruments using an internet-enabled mobile device or computer. Online trading is possible in Nigeria on the major markets of Currency, Stock and Contract for Difference (CFDs), Cryptocurrency among others.

Nigeria has enjoyed the benefits of the digital revolution, including the ability to trade online.

You can engage in online trading through an investment platform and registered broker. Your choice of trading instruments will determine the type of broker that you choose. But the ease of access has also been accompanied by rising scams related to investing & fraud brokers.

A basic overview of online trading in Nigeria

At the moment, Nigeria’s stock market is the only online market that is licensed. It is regulated under the Securities and Exchange Commission (SEC). CFDs and Forex Trading are legal in Nigeria. However, they are not regulated. This makes them vulnerable to fraud.

Cryptocurrency is in a worse position because it has been banned from operating by the Central Bank of Nigeria. It is therefore illegal to trade in cryptos within the country.

However, Cryptocurrency trading activities continue to increase in Nigeria, despite the ban. For instance, Nigeria has the world’s highest rate of Cryptocurrency adoption & The number of crypto users in Africa has risen dramatically in 2021 as per the latest reports.

What is the process of online trading?

Online trading

Potential traders should note that the major aim of online trading is to earn money which can be achieved by using the price fluctuations in the market.

Take for instance, a trader can buy a security or Instrument for ₦500 and then sell it for ₦510 if the price of the traded security goes up.

Online trading is very risky. You could lose some of your money. You can experience a loss when the price fluctuation of the security does not move in your favour.

For example, you have bought a security for ₦200, if the price of the security goes down, you now sell it at a lower price of say ₦180. This will result in a loss.

These are some of the points you should consider when creating your Trading Platform

Is the Brokerage Firm licensed in Nigeria?

This depends on the trading instrument that you are dealing with.

First, you need to know that a registered brokerage company will reduce the chance of getting scammed. This is because the broker would have high levels of accountability and transparency, knowing that they are being closely monitored.

CFDs, Forex Trading, and Cryptocurrency Trading have not been regulated in Nigeria yet. So, many of the brokerage firms offering these products are foreign based, but operating in Nigeria. They are not recognized by Nigerian financial regulators, which means that the Instruments can be misused.

Stock trading, which is different from Forex and CFDs in Nigeria, is regulated under the SEC. Stock broking firms are licensed by SEC and recognised by the Nigerian Exchange Group (NGX) to trade on behalf of clients on its floor.

A list of active and inactive stockbrokers is available from the stock exchange. This list can be used to trade. It is a good idea to regularly check this list as the group often amends it to capture inactive and active stockbrokers.

There are many online brokers that operate illegally in Africa.

Based on a report and research Forex Brokers SA on online trading in Africa in 2021, they found that there are 100s of scam brokers related to forex, crypto & CFDs who are promoting their illegal platforms in Nigeria. These scam brokers are ripping off many Nigerians. Many of these scam brokers promise high returns for online trading.

Some forex brokers in Nigeria offer CFD Online Trading through their apps. All these brokers accept Nigerian clients and are all foreign-regulated brokers. Traders and the public should avoid dealing with unregulated brokers or instruments that have not been regulated in Nigeria.

What fees will you pay to your brokerage firm?

It should be noted that the broker you choose will charge you a fee for executing your trades. Fees will vary depending on which security you’re dealing with.

Lots of brokers charge fees such as spread, commissions, swap fees, fees on deposit/withdrawals and so on. The fees is an important factor a trader needs to carefully consider before signing up.

#1. Spread

It is the difference between the ask and bid prices for a security or asset.

For instance, the typical spread for EUR/USD with a broker could be 1.9 pips. If a trader orders 1 Standard lot, the total trading fees are $19.

#2. Commissions

Check to see if any extra commission is charged for each trade.

Stock brokers in Nigeria may charge higher commissions than other brokers. CFD brokers may offer spread-only trading accounts while others have Raw spreads trading accounts along with commission per lot.

With their Commission-based accounts, some forex brokers may charge this per lot. With some brokers, the total trading fees are spread + commission, depending on the type of instrument that you are trading.

You should therefore verify the fees you will be charged for trading.

#3. Swap fees

Forex brokers charge this fee for overnight trades. Brokers can set the fees. Some brokers charge high Swap fees while others charge lower fees.

You borrow at a lower rate to invest in a higher rate of interest by buying a currency that has a lower rate of interest to purchase a currency that has a higher rate. The interest rate differential is credited to your account by the broker.

EUR/USD is an example of this. USD with a lower rate of interest can be used to purchase EUR with a higher rate of interest.

Your broker will debit you the difference in interest rates if you buy a currency that has a higher rate of interest to purchase a currency that has a lower rate of interest (e.g. EUR to buy USD).

How does the Broker provide support?

One of the most important factors that should be considered when choosing a brokerage and its platform is the standard of customer support.

Traders might need help in particular areas during execution of trades. A broker who is a good one should offer support through email or video chat, and customer service that is available during business hours.

Excellent and efficient customer service should be provided by the brokerage firm. As a trader, you don’t want just promises, you need practical problem solving and swift response to all Issues raised. Before you choose a broker to offer such services, make sure you do your research.

At the beginning of a trade, you can assess the support capabilities of a brokerage company. Examine how quick they respond to your issues and whether they are able solve your problems.  If you are satisfied, then it is a positive sign that the broker’s support is okay

Is the platform secure and safe?

It is vital to choose a trading platform that protects your account information and any other sensitive information.

Many brokers offer multi-platform access, which allows you to trade from anywhere. Some brokers only allow you to trade on their web-based platform. No matter which platform you choose, security and safety are paramount.

Also, you should check whether the broker’s app is secure. Is there a security flaw in the platform? Was there data theft?

Some brokers also have an office in Nigeria, such as FBS broker and the data of their customers was leaked because of security flaws. In addition, the researchers discovered that their database contained unencrypted passwords.

Is it easy to use the platform?

Note that trading platforms may have different eligibility requirements.

Take for instance, a day trading platform may require the traders to have at least N500, 000 in equity in their trading accounts and have approval for margin trading. Option platforms may require approval to trade different types or options before they are able to access the platform.

Third-party platforms, such as MetaTrader platform, are preferred by some traders in Nigeria. But some online brokers don’t offer third party platforms, and they offer their own proprietary platforms. Make sure you verify whether the platform you choose is available before signing up.

Finally, every Nigerian trader should note that a trading platform goes far beyond just the software that the broker offers you. Platform functionality, safety of your funds and access to customer support are key.

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