Why you’ll never see the Naira trade against the Dollar USD/NGN

Online trading boomed in popularity during the pandemic. This spike in popularity was also seen across Africa. Forex or Crypto trading in Africa is no easy task, and most African traders look for optimal trading conditions, and the best chances of making profits, when they choose a market to trade. For those unfamiliar with foreign exchange trading, also known as forex trading, it involves the trading of currencies that allows individuals to take advantage of changes in currency valuations in order to make a profit. It is the largest and the most liquid market in the world, and operates 24 hours a day, five days a week. On an average day, the forex market trades around 3 trillion dollars.

Just like many other pandemic trends, more and more Africans got involved in trading during those dark days, however, the conditions in Africa are very unique. Vast areas of the continent experience issue with electricity and slow internet speeds. This can make it challenging to take advantage of rapid changes in currency rates. At the same time regulations vary across the continent which means that not all the currency exchanges which offer trading provide good rates. Some Africans have tried to work around this by using VPNs to connect to European and American forex trading platforms, however, VPNs can be slow and expensive.  These are additional costs that are taken into consideration when trading from Africa.

Not all currency platforms are equal, however, almost all platforms will trade Euros (EUR), US dollars (USD), and British pounds (GBP). These will often be paired against each other or other currencies, usually those from developed nations. This is due to the liquidity associated with these currencies. For those interested in trading African currencies most FX brokers offer the South African Rand (ZAR) as an option. USDZAR, EURZAR as tradable currencies, that said, the remainder of the African currencies, broadly known as exotics, are hard to trade and are usually not offered due to low liquidity. This makes the currency moves more volatile. Liquidity is usually provided by the banks and the volume of transactions for the more exotic currencies is a lot less. Take for example USDNGN (US Dollar/Naira) which may have one strong intraday move and then prices remain at a standstill. A trader is more likely to trade USDZAR than USDNGN, and this is usually reflected in the currency pairings offered on popular exchanges.

In any case, despite the high costs associated with trading africans on the continent view this as a realistic prospect and an opportunity to make profits. With market retractions associated with the pandemic, inflation rising globally, and interest rates increasing the opportunities in trading seem boundless, but the question will always remain as to whether traders in Africa are well placed to take advantage of these opportunities.