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Is Online Forex Trading Legitimate?

Radio stations in many parts of Nigeria often air adverts inviting the public to forex trading seminars. Many of these announcements promise that listeners will learn money making ideas at such events; they pepper these requests with testimonials from people who have supposedly been helped to stupendous gains by the insights they picked up at those programs.

Sometimes, the claims made in these ads could force one’s mouth wide open. And for this same reason, not a few doubting minds dismiss the whole forex enterprise as just another strategy to rip off naive folk.

But is forex trading really legit? Or is it another scam, in the same box as the ponzi schemes and magic banks that have defrauded millions of Nigerians over the years?

What is forex?

In order to answer this question, we’ll have to understand what forex is.

The word ‘forex’ is actually short for Foreign Exchange. As its name suggests, it involves trading on an international level. Specifically, forex is the buying and selling of international currencies- basically, trading currencies like you’d trade other comodities in a regular market. For example, exchanging the naira for dollars.

As you might have already reckoned, this does happen in the real world. Importers wishing to bring car parts (or any other imports) will have to exchange their local currency (in this case the naira) for the currency used in the country from which they’re importing the car parts, in order to be able to buy them. Some people might also want to hold their savings in foreign currencies (like the dollar) instead of their local currency, if the foreign currency is known to be more stable and less prone to losing value. This will require that they convert some of their naira to the more stable foreign currency (dollars).

However, forex trading as spoken of by the radio and online popup ads you’ve heard and seen refers to currency trading done for its own sake. In this case, currencies aren’t exchanged to facilitate international trade in physical goods; they’re bought and sold for profit.

Here’s an example of a forex trading process. You’re holding dollars in your trading account. You decide to sell some of your dollars for British pounds when £1 goes for $1.20. In a month, the price for £1 rises to $1.40. If you sell the pound to get back dollars at this point, you would be making a profit of $0.20 (that is, $1.40 minus the initial value of $1.20). If you were selling £ 300, you would be raking in a profit of $60.

The actual trading isn’t always this straightforward, but the example we’ve given is a basic description that’s fair enough.

Is online forex trading for real?

The simple answer to this is yes. But there’s more.

In the past, currency trading was done almost exclusively by big financial institutions. Today, the internet is helping to open up the market to various sorts of players, including individuals who want to make money by exploiting differences in relative currency values over time. Online forex brokers have sprung up across the world, providing web based platforms for individuals to engage in forex trading. A number of these brokerages are well known globally, and could be considered safe enough to get involved with.

Inevitably, some ill intentioned persons and groups have sought to perpetrate fraudulent acts while in the guise of being forex brokers. They have offered fantastical profits to people willing to trade on their platforms, then swindled them of their moneys. It’s these counterfeits that have forced the questionmark which seems to perpetually hover above the forex trading business.

In a nutshell, this is as legit as any other morally permissible venture you’re likely to find; but only as long as you’re dealing with the right agents.

Which broker should you choose?

We’ve already hinted at the importance of the broker in online forex trading. They’re the facilitators, the ones whose web systems you’ll work with in order to access and trade in the international currency markets. If they’re real professionals, you’ll be in good hands. If they aren’t, you risk losing your precious money.

When hunting for a broker to work with, you should seek answers to the following questions.

  • How well known are they?
  • What sort of reviews have they gotten from existing or past users? Do the positive comments exceed the negative ones by a significant enough margin?
  • How long have they been in operation?
  • How strong is their presence in the market?
  • Are they regulated? By whom or what?
  • Do they have a customer support system?
  • How do they gain from the business? (if it isn’t clear how they would earn from hosting people on their platforms, you shouldn’t patronize them).

It’s always safer to stick with more established trading platforms which have gained a reputation for being reliable over time.

Basic tips for beginners

If you want to start trading forex, be sure to get these things done first.

  • Get properly trained. One-day seminars might introduce you to the basics, but you’ll have to do a lot of learning after that if you’re going to succeed. Thankfully, the internet has good material you can use.
  • Don’t get right off into trading with real currencies. Practice with a demo account, until you’ve become good at it (proper forex trading platforms have demo accounts for beginners). Don’t skip this. You could lose your money if you sauntered into trading without practice.
  • You’ll need to open a trading account with your preferred broker, and fund it. You should also have a domiciliary account with your bank, which will allow you withdraw your profits and directly fund your trading account.
  • Make sure your device (laptop or smartphone) is fit for this purpose. Regularly available power and fast internet connection are also essential.
  • Keep your eyes on the markets. Know what the trends are, and find out how they could affect prices and impact earnings. This last point is vital. Your ability to tell what the trends mean for the market and your swiftness in reacting to these trends will determine how well you do (or don’t do) in trading.
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Ikenna Nwachukwu

Ikenna Nwachukwu holds a bachelor's degree in Economics from the University of Nigeria, Nsukka. He loves to look at the world through multiple lenses- economic, political, religious and philosophical- and to write about what he observes in a witty, yet reflective style.

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