The Forex market has been surprisingly resilient during the COVID-19 pandemic. Especially when it comes to the equity conditions on the market. For instance, when compared to other markets, such as stocks or commodities, currency traders have maintained relatively stable levels of equities, whereas other market participants were damaged quite a bit.
As for currencies, the issues were more pronounced in terms of the demand on them from the trading community. One currency that had this particular issue was the Nigerian Naira that suffered a nearly 7% drop in its exchange rate relative to the USD.
However, if we take a look at the exchange rate of Naira, we can see that there have been periods (April) when the currency has strengthened against the US dollar quite a bit. And while this development could potentially give off the impression that the economic situation is improving in Nigeria, the reality shows that it couldn’t be further from the truth.
First things first, the exchange rate hasn’t been increasing all the time; in August, for instance, it has actually dropped relative to the USD. Besides, as a consequence of the COVID-19 lockdowns, it’s plausible that many people have turned to online Forex trading, leading to increased demand in currencies.
Healthy forex landscape in the country
Even before the pandemic, Nigeria was one of the strongest countries in Africa when it came to the forex industry. The main reason behind this was the stability of its economy, as well as its politics. Compared to other countries in the region, Nigeria posed as a safe jumpstart location for foreign investors within the African continent. Because of this, it received a relatively large flow of FDI – US$3.3 billion (2019), even if in 2019 it was actually lower than the previous year by some 48.5%.
This relative stability of the economy influenced the country’s currency as well, convincing many locals to start utilizing its strength compared to neighbouring countries. And in a short while, the Nigerian Naira basically became like the USD on the African continent, gaining more and more traction as time passed.
This strategy didn’t pass by foreign FX companies either, and soon, Nigeria was home to some of the best forex brokers to trade with online in both Africa and the world as well.
Many experts were expecting this “facade” of currency strength to crumble as more and more African nations started to initiate a lockdown, Nigeria being one of the first countries to do so. Although these experts were right in some aspects of the economic issues, they were not so right about the forex landscape within Nigeria.
While the economy shrank and more and more Nigerians found themselves laid off from work, more and more of them started to truly delve into Forex, which is a digital industry that allows people with just a laptop and internet connection to build a whole new career for themselves.
Naturally, most Nigerians would start trading with the Naira as it was a currency they knew most about. And given the beneficial developments relative to other African countries, these traders were in for more profitable trading ventures.
As a direct result of the surge in forex supply in the country helped Nigeria gain thousands, if not tens of thousands, of experienced forex traders within just a couple of months after locking down most of their economy. And it’s not like these forex traders are going to just give up on their new-found hustle. They will continue to trade much further into the future.
This provides Nigeria a very healthy alternative for its population should a new massive wave of pandemic hit the economy. Furthermore, it increases the trader pool available for any potential FX brokers wanting to move to the country.
At the time of current crisis, such an increased interest in forex trading will undoubtedly convince previously sceptical financial companies to move over to Nigeria and thrive.
Volume means innovation
The increased number of forex brokers also brings new opportunities for innovation. Forex brokers are turning to new technology to increase their competitiveness.
Competition can lead companies to develop completely new features to stand out in the onslaught. It’s very likely that newer FX brokers will try to innovate in ways they charge commission, so that the source of income for the firm is something other than trading-related expenses. This might even mean evaluating spreads in favour of the customers and reducing them quite a bit. This provides more and more opportunities for local forex traders, thus growing the popularity of forex trading even further.
To put it in a nutshell, all the Nigerian forex market required to jumpstart was a guarantee of stability, and we are now in the midst of a market surge on a continent that contains almost 1/7th of the world population.
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