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Unveiling the Risks: Why FX Speculation is risky for the Average Nigerian

It’s critical to comprehend the risks of FX speculation. However, you must have a well-thought-out plan in place to become successful in the market.
FX Speculation

Foreign exchange (FX) speculation simply means buying and selling of currencies to make profit. A speculative investor is someone who closely monitors the currencies price movements.

However, the capacity of potential investors to make profitable investments in FX market has been hindered by low disposable income and high poverty rates in Nigeria.

According to a PwC report, poverty in Nigeria is projected to increase to 38.8% by 2024.

Furthermore, despite Nigeria low unemployment rate, persistently low consumer spending and purchasing power remain challenges, making it exceedingly difficult for ordinary retail investors to profitably speculate on market movements.

Even though, as a professional speculative investor, you watch currencies price movements closely, there's still a considerable risk at stake.

Investors often prioritize profiting from market value fluctuations over long-term investment. For instance, if a currency is pegged at a specific level and investors perceive it as overvalued, they may start selling their reserves, leading to a decline in its price.

In addition, many Nigerians turn to the black market for a variety of legitimate and good purposes, yet it's also crucial to acknowledge that illegal activities such as financial fraud, currency manipulation, arbitrage, and indiscriminate round-tripping are being carried out in the black market.

FX market analysis

Speculators see low success rate in the FX market. In the initial two years, 80% of day traders quit, with 40% lasting only a month. After three years, only 13% persist, dwindling to 7% after five years.

Nevertheless, successful trades fetch a 50% higher price than unsuccessful ones. Forty percent of trades end in losses, while sixty percent are profitable.

Well, it's important to let you know that speculative trading isn't for professionals only. Novices can also delve in. However, success requires expertise. Both professionals and novices can engage, but understanding risks and having a solid plan are crucial.

Before diving into speculative trading, it's essential to familiarize yourself with market trends, technical analysis, and risk management.

Statistics show that only about 1.6 percent of day traders are profitable over a year, yet they contribute to 12 percent of day trading activity.

Speculators often face intense pressure on their portfolios in such market conditions, making long-term investors more resilient.

While speculation holds the promise of substantial rewards, it also comes with high risks. FX market speculation particularly aims for high-risk opportunities with significant rewards, necessitating ample capital, effective risk management, emotional control, and a deep understanding of market dynamics.

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About the Author

With five years experience in Media, Temmy Samuel's become a modern journalist, delivering impressive reporting about tech, finance, business and science around the world. More About Temmy

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