Nigerian investors are setting their sights on the US dollar and other foreign currencies instead of the Nigerian naira. A report by Zawya explains that both locals and foreign investors are stifled this year because the Nigerian foreign exchange reserves are down by USD 578.3 million (N267 billion). The report shows that the country has struggled to grow its reserves since 2020, which is why it’s not surprising that the Naira remains in short supply while the US dollar is in strong demand three years later.
Due to the current state of Nigeria’s forex reserves, local forex traders should consider buying and selling in-demand foreign currencies instead of the naira. Here are the following advantages that you can experience from trading foreign currency pairs in the forex market:
It’s undoubtedly more convenient for local investors to trade using the local currency. However, the declining forex reserves and the rising demand for the US dollar in the country show that the naira may be volatile in the forex market at present.
In fact, a research study on the Nigeria Foreign Exchange Experience shows that the naira exchange rate can be volatile due to the devaluation of the local currency. The Naira has been devaluated to attract foreign investments in the country, but this move strained the local currency’s value in the forex trading market. Unfortunately, the volatility of the local currency can lead to risks and losses for Nigerian traders, which is why it’s crucial to invest in less volatile foreign currencies until the naira stabilises in the market.
Lower overall costs
Volatility is crucial in forex trading because it can affect other factors in the market, such as the average spreads for currency pairs. More volatile currency pairs tend to have more enormous differences between the bid and the asking price, which is why there’s a greater risk of losing more money from pairs with higher spreads.
Meanwhile, major currency pairs tend to have lower average spreads in forex trading, making them less risky and costly to local traders. Unfortunately, the Nigerian naira is not included in these major currency pairs, which mostly consist of the US Dollar, the Pound sterling, the Euro, and the Japanese yen. Consequently, it will be more advantageous for you to trade major currency pairs with lower average spreads because there’s a lower risk that you’ll receive a lower selling price than what you paid when buying a currency pair.
Accessible analysis reports
Forex traders need to assess the performance of currency pairs through technical analysis and fundamental analysis tools. Fortunately, it can be easier to get access to these analyses, especially if you’re assessing the performance of major currency pairs.
Though there are analysis reports about the Nigerian naira, there are more market analysis reports and news about major currencies, like the US dollar, the Pound sterling, or the Euro. There are more economic publications, financial news websites, and special forex news providers that cover the performance of these popular foreign currencies, making it easier for local traders to spot trends, resistance levels, and potential reversals. Through these widely accessible analysis reports about major currencies, it will be quicker for local traders to find potential opportunities and make data-informed decisions.
Higher chances of earning profit
There’s a good reason why major currency pairs are popular among traders. While you can earn profits from less popular pairs, these major currency pairs offer more potential to offer profits to both beginner and experienced traders due to the strong economies of their countries.
As such, it’s not surprising that popular currency pairs in the forex market like EUR/USD are favoured by Nigerian traders, as well. Many local investors even trade between 14:00 and 18:00 local time because these are the time periods when two of the largest trading sessions overlap. Local traders have an increased chance of gaining profit within these sessions because it is when the markets of London and New York are active for the trading of foreign currency pairs.
Major international currency pairs rose in popularity due to their low volatility and high profitability. You can buy these international currency pairs to widen your portfolio and optimise your chances of earning from both local and foreign currencies.