Some of the challenges that face many Nigerians wishing to relocate abroad range from currency exchange rates to rising interest rates and high inflation. This is why it’s advisable for anyone planning to relocate abroad to familiarise themselves with how the forex market works. The truth is that you do not need to be an investment trader to benefit from the foreign exchange market. Every time you travel abroad and change your money into a foreign currency, you are taking part in it.
For Nigerians living abroad, importers, and investors wanting exposure to international assets, currency risk is a major concern. One of the complicating factors is that many people in the diaspora and most who are exposed to foreign exchange, do not have a way to quantify their exposure to find possibilities to protect their wealth. Highlighted below are some of the ways you can get started with the forex market.
Choose Your Base Currency: The most frequent denomination of your base currency corresponds to your most important financial objectives. For instance, the British pound serves as the basic currency for Nigerian students attending schools in the UK. Therefore, it is wise to check on your Forex assets to see whether any adjustments are required if the majority of it is held in a different currency than your base currency. You may have seen a currency quote for the USD/NGN pair, for instance. In this instance, the dollar serves as the base currency. The reference currency is the naira.
- The base currency is equal to one unit in all instances of currency quotes. The amount of money that one unit of the base currency may buy is represented by the quoted currency. All that indicates, based on our prior example, is that a dollar may purchase X naira. In the forex market, an investor can profit from an increase in the value of the quoted currency or from a decline in the value of the base currency. When using no leverage, currencies are typically less volatile than equities.
Protect yourself from currency risk: Another strategy is to incorporate a hedge against currency fluctuations, such as an investing account. Equity investments may be less vulnerable to currency fluctuations, but diversification across industries, nations, and asset classes is still crucial.
- Many Nigerians that lack the financial acumen to hedge may not be aware of the currency in which future liabilities (such as healthcare, education, property, or living expenses) will be expressed if they have not yet made any decisions regarding their eventual retirement or are considering relocating.
- In this situation, a financial advisor can help you create a well-balanced portfolio that is weighted toward your probable options to maintain flexibility without only investing in assets from one country.
Understand currency speculation: Currency management is largely a technique to limit risk rather than a high-return strategy, even though there are various strategies to stop currency exposure from having an impact on your wealth and investment account.
- Because there is less long-term potential for healthy profits with currency speculation than with other goods like stocks or bonds, if one currency appreciates, the other will devalue. Of course, you’ll need to look for a regulated Forex broker first for speculative or hedging purposes. Every retail Forex transaction goes through a brokerage, which also oversees it. Compare the commission fees charged by different brokers before concluding your search. The profitability of trading activity is influenced by transaction expenses. Given the intricacy of politics and other factors, it can also be exceedingly challenging to predict currency changes with any degree of accuracy. To sum up, It is crucial to realize that sharp fluctuations in exchange rates can reduce profits when longer-term investments are held in a currency other than the one used for your principal spending. The genuine value of your wealth and assets, which enables you to spend or invest in outgoings, is referred to as buying power.
- While earning money with your forex knowledge may sound thrilling, you should not regard it as though it were a game. Instead, it necessitates a great deal of commitment, effort, and knowledge.
