Online trading has grown in popularity in Nigeria over the last decade. Many young traders and investors have become investment savvy and have started to use online trading as a means of supplementing their income or even for earning either part-time or full-time.
Online trading refers to trading in securities or any investment instruments through the internet by using an online broker. There are several types of securities and investment instruments which you can trade such as forex, cryptocurrencies, stocks, commodities, and so on.
Online trading is different from investing. In online trading, a person holds a position in a security or asset for a very short period of time. Usually, a position is entered into and closed within the same day. This is called intraday trading. Investing is usually done for a longer period of time keeping long-term capital appreciation in mind. Whereas, trading is done on the short-term fluctuations of the market.
Online trading in Nigeria is regulated by the SEC of Nigeria. It is important to regulate online trading due to the high possibility of fraud and unethical business practices.
One should always trade through a broker who is licensed under Nigerian regulations and is operating under the oversight of the regulators like SEC. One can check the license of a broker by visiting their website and noting their license number and regulatory authority.
What is Online Trading?
Online trading means the buying or selling of securities and financial instruments in the markets. Online trading can be done through different platforms and through different registered brokers. You can trade a variety of securities or instruments. For example, you can trade forex; Forex or foreign exchange trading refers to the buying or selling of currency in exchange for a different currency.
The goal of online traders is to make money using the price fluctuations in the market. For example, you can buy a security or instrument for ₦100 and then sell it for ₦110 if the price of that security goes up.
Remember that trading securities or financial instruments are a risky practice. There is a high likelihood of losing money when trading online as well. This happens when the price fluctuation of security does not move in your favor. For example, you have bought security for ₦100 but then the price of the security went lower and then you have to sell it at ₦90.
While trading, the broker will also charge you a fee for executing your trades. The exact fee varies from broker to broker and depends on the security that you are trading.
Steps to Start Trading Online:
- Decide on the Investment Instrument
There are several types of securities or instruments that you can trade online. These instruments include stocks, cryptocurrencies, foreign exchange, metals, commodities, indices, and so on. Before you start trading online, you need to decide an investment instrument that you will be trading. Do not try to trade all of them or pick and choose randomly.
You should only trade an instrument type that you are familiar with and understand. For example, stock trading is very different from forex trading. If you are familiar with stocks and how they work, then you should stick to stock trading rather than also trading forex and vice versa.
Deciding on an instrument type to trade can seem like a daunting task if you are a beginner. There are a lot of options out there. Each instrument type carries its own risk profile. They all work in different ways.
Hence, you should start learning about each security or instrument type (and each underlying market) to understand which one suits you the most. You can simply choose an instrument or security type that sounds most appealing to you and start learning about that.
There are several books and e-books that you can buy which will teach about online trading. Pick a few good books to start your trading journey. There are also few free websites and online guides that can help you get started. Like this beginner’s guide on forex trading in Nigeria and stock trading guide.
- Choose a Brokerage
Before you can start trading, you will need to choose a broker. The broker that you choose makes an important difference to your overall trading experience. There are several factors that you need to consider while choosing a broker.
Some of the most important factors are: is the broker regulated by the SEC or NSE and other reputable Tier-1 regulators? What are the instruments that the broker offers the ability to trade? How much fees does the broker charge for the instruments that you want to trade? What are the trading conditions that the broker offers? How good is the customer support of the trader? Does the broker have local Nigerian offices?
All of these factors play an essential role and you should consider all of them before picking a broker. The most important factor is whether the broker is considered a safe broker to trade through (is the broker regulated by the SEC and other global Tier-1 regulators such as the FCA, CySEC, and ASIC?)
In Nigeria, stock & derivatives brokers must be licensed by NSE while if you want to trade commodities then you must only trade with authorized members of licensed exchanges like LCFE, AFEX and NigeriaCommex. On the other hand, if you are trading forex, then you must ensure that the forex broker is regulated by top regulators like FCA or ASIC or CySEC.
When calculating how much fees a broker charges, you must also be careful of noting down any hidden fees such as deposit or withdrawal fees.
Try to read the terms and conditions before signing on with a broker.
- Open a Trading Account and Complete KYC
Once you have chosen your broker, then you need to register yourself with that broker and open an account. This is a relatively simple procedure these days, but it used to involve a lot of paperwork in the days gone by.
You can open a trading account by providing basic details about yourself and linking your bank account or payment method like Skrill with the broker. This allows you to deposit and withdraw money from your trading account. It shouldn’t take you more than 10 minutes to set up an online trading account with a broker.
The most important step is to complete your KYC or know-your-customer norms. This is where you provide your government authorized identification details to the broker. This enables the broker to be sure of your identity and fulfils an essential regulatory norm. Be vary of any broker that does not ask you for your KYC details. If you are trading stocks or other instruments on NSE then you are also required to create CSCS account.
Once the broker has verified your details, you will be able to start trading through them.
- Download and Install the Platform and Start Trading
Once you’re ready, you can start trading through the trading platform offered by your broker. Different brokers offer different trading platforms, so you will need to spend some time in understanding how your trading platform works.
Trading platforms are usually available for all your devices such as smartphones, browser, and windows or Mac software. But some trading platforms may not have all versions available, so you need to pick a trading platform that is most convenient for you.
Before you start trading with real money, you should try paper trading. Paper trading refers to trading without using any real money. You will get important trading experience without the risk of losing your money if you demo trade.
A lot of trading platforms have the option of paper trading or demo trading account. If your trading platform does not have that option, then you can find other apps online that allow you to demo trade.
After you have tried and tested your trading strategies for a sufficient period of time, you should start trading with low amounts of money to get your feet wet.
- Keep Learning
Trading is not an exact science. You will need to continuously keep learning about the market and trading as much as you can in order to improve your skills. You will need to develop analytical skills that will serve you well in the long term.
The best way to learn is to read books and other material like news, research, websites on trading and by reading as much as you can about the historical performance of the markets. This will give you an idea of how and when and why the markets fluctuate the way they do.
You need to have an effective trading strategy in place if you want to earn money through trading. Your strategy needs to include risk mitigation methods such as using stop loss and negative balance protection. Thinking about the risk associated with all your trades is an important part of being a successful trader.
Important Consideration and what you should do
Online trading is a risky exercise. The best way to see if trading is for you is to start paper or demo trading, which will allow you to experience a trader’s life without the risk of losing your money.
Online trading is not an activity to be taken lightly since the risk to your money is quite real. But there are a number of things you can do like analyzing & mitigating risk, that will help ensure that you make more money than you lose while trading.