CFD trading is getting more and more popular with Nigerian traders
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More and more Nigerians are discovering CFD trading as a means to gain access to world financial markets away from traditional investment vehicles such as stock purchases via banks and psychical asset holding. With foreign CFD brokers establishing a local presence in Nigeria, the number of CFD traders and their knowledge about CFD trading a like, the trading volume is set to have a triple digit growth over 2018 and 2019.
CFD, or Contract for Difference, has long been available to European and Asian investors as method of speculating on the price movements of different assets ranging from stocks and commodities to currency and indexes without actually purchasing the underlying asset. Instead, traders enter in to a contract with the CFD provider to buy or sell a certain CFD derivate tied to an underlying asset. Traders will make a profit if the market moves in the direction that the trader placed their trade; a buy order will generate a profit if the price of the asset goes up and a sell order will make profit if the prices goes down.
What is driving the growing popularity of CFD in Nigeria? After interviewing several Nigerian traders, several key factors emerge to why they engage in CFD trading:
Access to world markets
When speaking to Nigerian CFD traders, one of the most common reasons they engage in CFD trading is the access to almost all financial markets in the world from one trading account. From the CFD trading account they open as many positions they want on international stocks, currencies, commodities such as oil, gold and silver, cryptocurrencies like Bitcoin and everything in between. Tied in with this is the relative easiness of opening a trading account compared to over types of investment accounts; most Nigerian traders have opened and verified their account in 5-10 minutes.
The use of leverage in trading
Another key reason why Nigerian traders favour CFD is the availability of using leverage when trading. Nigerian-based CFD brokers like IQ Option offer traders to use their leverage up 400 times the capital that the trader has deposited to increase position sizes without the need for using their own capital and only trade with a small margin. The use of leverage becomes important when trading with assets with small price movements; if a trader opens a buy trade for USD/NGN and uses his or her own capital of 100 USD for the trade, the leverage would amplify the trade size up to 40,000 USD. If the USD/NGN rate goes up a mare 0.003 USD, the trader would have made a profit of 1,200 USD profit. Leverage also amplifies loses so traders tend to want to use leverage with caution.
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The ability of going short
Another key reasons why Nigerian traders’ favours CFD’s over physical asset trading is the ability to ‘go short’ which means that you can make profitable trades even if the price on asset goes down. By placing a Sell Order for CFD tied to an asset, for example oil, you are essentially making a profit if the price of the oil declines. On the reverse, if the price of oil goes up, you make a loss. The ability to go short is only available on derivate products such as CFD’s as it impossible to make a profit on physical asset if the price of it goes down.
If you are interested to learn more about short trading, click here to read our straight-forward article on short trading with examples.
Lower barrier of entry
Many traditional investment accounts require a large capital deposit up front to get access to trading. Most CFD brokers, including AvaTrade, only require 100 USD in deposit to get started with trading and on top of that also gives new account holder a bonus of up to 25% of their initial deposit. Since you can use your Nigerian bank debit card to fund your account, this process usually only takes a couple of minutes.
We hope that you found this article on the growth of CFD trading in Nigeria interesting. The next natural step is to use the free educational material and free demo account that our recommended CFD broker provides:
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