Risks of trading with foreign online Forex Brokerage firms


FLE PHOTO: Forex trading

If I broke na my business…This is a line from a popular song sung by Nigerians. But in reality, no individual wants to live in penury.

An average Nigerian can hardly live comfortably with one income source. The harsh Nigerian economy has driven many people to seek numerous sources of income.

Retail forex (foreign exchange) trading is now being wrongly seen as an easy way to make money online nowadays. Youths post photos on social media of a supposed flamboyant lifestyle from the alleged proceeds of forex trading.

However it is all noise and you don’t have to believe all you see on social media. Statistics show that 80-90% of retail forex traders lose money and the only way to actually build enduring wealth is through investing.

Forex trading is complex and you need detailed knowledge to trade right.

Retail Forex Trading is ‘not’ Regulated in Nigeria

The Securities and Exchange Commission (SEC) is the regulatory authority of the capital market in Nigeria. SEC undertakes control activities to ensure investors are protected.

Retail forex trading, however, is not regulated by the SEC. You are thrown in the dark on which online forex brokers to use since they are not recognized by the SEC. It would be difficult to seek redress if you are scammed or if the broker goes bankrupt.

There has been an increased rate of advertisements motivating the public to engage in retail forex trading. SEC has issued a warning to the public to that effect.

The warning stated that anyone involved in forex trading, does it at his or her own risk. The public has been advised to desist from forex trading until SEC regulates online forex brokers.

To be clear retail forex trading is not illegal in Nigeria. All the forex traders in Nigeria have to register with international forex brokers accepting Nigerians and there is no government protection for you in cases of arbitration as these brokers are answerable to over-sea authorities.

Foreign forex brokers expose you to Excessive Leverage

Leverage is a distinct feature of retail forex trading. It allows you to borrow funds from online brokers to trade. Leverage can be beneficial since it gives you access to funds above your current account balance.

However, it can be disastrous if you make a loss from trading. The higher the leverage ratio, the higher the losses you would incur if the market moves against you.

For example, with a 1% margin, you have a leverage of 1:100 so you can leverage $100,000 with an initial deposit of $1,000. This means you have 100 times of your original balance to trade.

In the case of profits, you repay the broker’s loan and pocket the rest. For loss, you have to repay the brokers loan in full. This implies that you can lose more than the capital invested.

While Europe and Australia have restrictions on their leverage ratios, major brokers operating in Nigeria offer excessively high leverage. For example HotForex broker offers 1:1000 leverage option to its clients and this is very dangerous for inexperienced retail traders. Leverage is a two edged sword and when in the wrong hands can be destructive. Excessive leverage amplifies your losses as a little change in exchange rates can expose you to a margin call.

The use of high margins mostly leads to bankruptcy when the trade goes against your favour.
Many Nigerians have gotten their fingers burnt due to excessive leverage.

Inadequate 24/7 Customer Support Channels

A risky undertaking like forex trading requires effective customer support services. Most foreign online brokerage firms make use of foreign phone numbers which are hard to connect to.

Asides from that, such numbers may be accessible only during their time zone working hours.
The time difference makes it difficult for Nigerians to get quick replies from some of the brokers.

Most forex brokerage firms make use of bots to reply to inquiries. This is inadequate because the response does not always meet the specific needs of forex traders.

You could also create a thread for your question and await a reply from the customer support team. The problem with this is that it takes time before a response is sent to you.

The reply comes late and money may have been lost before then. An active customer support service would make retail traders feel at ease even when faced with problems as they trade.

Unavailability of Naira Trading Account

Some foreign brokers do not offer clients naira trading accounts. As a Nigerian, you have to convert your funds to a foreign currency to trade.

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This has increased the risk involved in currency exchange. Many unsuspecting individuals have fallen victim to online scammers in a bid to convert money.

The commercial banks in Nigeria do not sell foreign currencies to the public except for PTA & BTA. The only option left is to purchase hard currencies from the black market at a higher exchange rate.

Inadequate Risk Warning to Clients

Foreign online brokers do not properly inform Nigerians of the risks involved while trading CFDs. A Contract for Difference (CFD) is a contract between two parties where they make predictions on the rise or fall in price of an underlying asset without owning the asset.

You Buy a CFD contract if you feel there would be a rise in the price of the underlying asset and Sell if you predict a fall in the price. The CFD broker takes the opposite side of your trade. Whoever loses the prediction pays the other party the difference between the opening price and the closing price of the underlying asset.

CFD trading is very risky. Tier-1 regulators in advanced nations require the CFD brokers to put a CFD risk warning on their websites stating the percentage of traders that lose money trading CFDs. This isn’t obtainable in Nigeria and retail traders are ignorant of such information.

Since there is no disclaimer stating the risks involved in trading CFDs, Nigerian clients pump in money with the hope to make profit. A higher percentage of traders lose their funds while involved in CFD trading. Online CFD brokers use different websites for emerging nations like Nigeria.

Most brokers don’t offer Negative Balance Protection (NBP)

Negative Balance Protection offers a form of restriction on your forex or CFD account while trading. What this means is that you can’t lose more than what you have in your account.

In the event of loss, your loss is automatically stopped when your balance becomes zero.

This protection is only effective in advanced countries. Nigerian retail clients risk having their account going into negative hence owing their broker. This can happen during high market volatility where exchange rates can fall suddenly, and force your account into negative.

You have to deposit more money into your account to pay for the funds you owe your broker. If you refuse to comply, the broker takes necessary action to recover their money. Lack of NBP can leave Nigerian retail clients worse off than their initial position before trading.

No Guaranteed Stop Loss Order (GSLO)

A GSLO closes positions and exits trade for a trader once the stop price is reached. Stop price is the price at which a buy or sell market order is triggered for the next available market price

The GSLO provides a more secure stop loss than the regular Stop Loss Order which is prone to Slippage (closing position at a price different from the stop price). A GSLO attracts costs that are charged only at its execution.

GSLOs can only be placed during trading hours. You should set GSLOs at a minimum distance from the entry price.

The distance is stated in the product overview and a warning would pop up if you decide to move it closer to the entry price. Outside trading hours, you can only move the GSLO farther away from the entry price.

Changes made to GSLOs are charged at no cost. To place, modify or cancel a GSLO, you should have sufficient balance in your account to cover any changes in the position margin. If not, your GLSO may be rejected.

Regrettably, the benefits of using GSLO are not enjoyed by Nigerian retail traders. This is because there is no provision of GSLOs by online forex brokers for this country.

Some brokers don’t allow withdrawal to Naira account

Some online forex brokers, don’t support withdrawals into your Naira account directly since you can’t deposit funds via Naira. Thus, the same thing applies when you want to withdraw. You need to source for other alternate means of withdrawal, like PayPal, Skrill, Neteller, and more.

However, PayPal is restricted to Nigerians due its usage by Nigerian fraudsters. Other options such as Skrill and Neteller are available but are also not as safe as Paypal.


You should know what to expect while dealing with foreign online brokers & avoid trading forex with broker who are not regulated by any Tier-1 regulation.

Carefully and weigh your options to check if forex trading is worth it. The choice to engage in forex trading in Nigeria is yours. Bear in mind that trading with a foreign online broker is at your own risk.

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