Prop Trading in Nigeria – How It Works

The global prop trading market has been growing at an impressive pace over the past decade and Nigeria has emerged as an attractive destination for prop firms to offer funded accounts.

With a growing economy and a vast potential client base, Nigeria is an attractive market for prop firms.

The regulatory framework and overall market ecosystem in Nigeria is considerably lax, as prop trading in general does not warrant many complex licensing and regulatory requirements.

However, before we dive deeper into the prop trading ecosystem of Nigeria, we must first overview prop trading in general – what it is, why it is growing in popularity and important factors to consider before signing up for a funding challenge.

The Prop Trading Market at a Glance

Proprietary, or prop trading, is a practice that involves prop firms providing funded accounts to clients who must complete evaluation challenges to prove that they can meet the requirements upheld by the firm, after which they become eligible for a funded account.

Funded accounts come in all shapes and sizes, with variable terms and limitations as well.

For example, some of the most common requirements traders must comply with when prop trading include the following:

• Profit target – the percentage of profit a trader is required to generate over the course of the funding challenge
• Drawdown limit – the daily and overall loss limits traders can reach. When violated, drawdown limits cause the trader to loss the funding challenge
• Number of trading days – most prop trading firms require traders to be active on the market for a specified minimum number of days

What you should know about prop trading

Prop trading can be a peculiar activity for traders that do not have experience with it. Prop firms provide funding challenges which give successful traders the opportunity to gain access to a funded account in exchange for a fee that represents only a fraction of the face value of the funded account.

This is very attractive for traders with a limited budget that want to take advantage of accounts with larger buying power to generate outsized profits on the forex market.

However, this also comes with rules and limitations, as we have already discussed above.

Many traders go into prop trading expecting massive success and millions in account funds, but the rules of the prop firms make it challenging for them to formulate a strategy that hedges against violating the rules of the funding challenge.

Is Prop Trading Regulated in Nigeria?

While forex prop trading is not subject to much regulatory scrutiny in Nigeria, we must consider the fact that prop trading does not generally require such regulations, as prop firms do not deal with securities and merely provide funding for accounts held by their partner brokerage firms, which do require a considerable amount of licenses and regulatory approvals.

Therefore, traders based in Nigeria have access to a wide range of international forex prop firms, while

Forex Regulations in Nigeria

While prop trading is relatively unregulated in Nigeria, as it is all over the world, dealing in securities is subject to a much different approach, as forex brokerage firms are required to obtain a valid license from the Central Bank of Nigeria and the Securities and Exchange Commission.

It is worth considering that most prop trading and forex brokerage firms that operate in Nigeria have access to international securities. For example, the most popular currency pairs traded by Nigerian traders are majors, such as the EUR/USD, USD/JPY, etc, while exotics and minors are also available.

Forex brokerages that wish to acquire licenses from the SEC and the CBN, have to comply with the capital requirements of the two bodies, which include:

• Forex brokers must obtain a broker/dealer license from the SEC
• The filing/application fee must be paid to the SEC (NGN 50,000)
• The NGN 200,000 processing fee must be covered, as well as the NGN 500,000 registration fee
• The minimum paid up capital required to register as a forex broker/dealer in Nigeria is equal to NGN 300 million
• The Current Fidelity Insurance bond equal to 20% of the paid-up capital must also be covered
• The relevant data regarding the partners, shareholders and directors of the brokerage firm must be provided to the SEC, as well as the latest audited financial statements

Other additional rules and regulations with regards to forex brokering in general are not upheld, as all financial securities broker dealers must comply with the above rules.

Digital Payment Channels Available in Nigeria

Due to the fact that there are hardly any locally registered prop firms available to Nigerian traders, the ability to pay for funding challenges using the Nigerian naira (NGN) is also rather limited. Most prop trading firms accept EUR, USD, or GBP as account currencies.

However, online payment channels available in Nigeria could be supported by prop firms in the country, which allows traders to easily withdraw their profits in EUR or USD and then exchange them to NGN locally.

Some of the notable online payment solutions and channels often used by traders and consumers in Nigeria include the following:

• Online payment software – Remita, Flutterwave, Paystack, CashEnvoy, etc
• Commercial banks – Access Bank, Zenith Bank, United Bank of Africa, Ecobank, etc.

To check which payment channels are supported by the prop firm of your choice, make sure to check their official website or contact support.

Instruments Available to Traders in Nigeria

While most prop trading firms tend to focus on forex trading, traders nonetheless have access to other asset classes as well, including commodities, CFD-s, indices, and crypto.

In some cases, prop firms also offer stock trading using funded accounts. However, such prop firms are a minority and forex trading is much more popular.

Currency pairs

The primary reason why traders in Nigeria and worldwide sign up for prop trading accounts is to trade major forex pairs, such as the EUR/USD, USD/JPY, CHF/USD, etc.

The local currency markets across Africa are less stable and do not attract much trading volume However, certain exotic pairs, such as ZAR/USD and NGN/USD are also offered by some prop firms.

In general, the selection of pairs among forex prop firms can be somewhat limited and focused on major and minor currency pairs with the highest average trading volume.

Commodities

Major commodities, such as oil, gas, gold and silver, are some of the most popular instruments traded on prop firms.

Oil and gas, in particular, are popular among prop traders in Nigeria, as the country possesses abundant hydrocarbon reserves and oil and gas extraction is one of the largest industries in Nigeria.

Most prop firms give traders access to a handful of energies and metals, which typically include CFD-s on oil and gas, as well as gold and silver. However, the selection may vary considerably between different firms.

The spreads on commodities also depend on the specific broker-dealer the prop firm is partnered with.

Indices

Major equity indices from stock exchanges around the world are popular instruments prop traders have access to.

Some of the most common indices include the S&P 500, the Nasdaq 100, the DAX 40, and more. In general prop firms will offer a handful of indices for trading, the number of which typically ranges from 5 to 10. However, certain prop firms with more focus on stocks may offer more indices.

Stocks

Stock prop trading firms are quite rare on the global market, as stocks tend to be considerably less liquid than major forex pairs, which is why many prop firms tend to avoid stocks.

However, a handful of firms do offer hundreds of stocks for trading to their clients and Nigerian traders can access these firms with little to no barriers.

Typically, prop firms will offer some of the biggest stocks in terms of market capitalization, such as Apple, Microsoft, Meta, Tesla, and others.

Prop firms that offer more than 100 stocks for trading are a welcome addition to the market and give traders in Nigeria more choices in terms of what they can trade using their funded accounts.

Crypto

Cryptocurrencies, particularly Bitcoin and Ethereum, are quite popular among prop traders, thanks to their rapid price swings, which allows traders to take advantage of the numerous opportunities that are available and deliver solid progress towards meeting the profit target of their prop firm.

However, the selection of cryptocurrencies are typically quite limited and most prop firms offer less than 10 cryptos available for trading – focusing on the major ones.

Despite this, the addition of crypto creates many opportunities for traders, as it adds a more volatile instrument to the lineup of tradable instruments.

FAQ on Prop Trading in Nigeria

Is prop trading legal in Nigeria?

Yes. Prop trading is entirely legal in Nigeria and subject to little to no regulation, as prop firms do not deal in financial securities. Conversely, the forex brokerage firms partnered with these prop firms are required to make mandatory regular filings with the Nigerian SEC and register with the National Bank of Nigeria.

What can I trade at Nigerian prop firms?

Nigerian traders can access a wide range of instruments via prop trading firms. This includes major and minor currency pairs, energies, such as oil and gas, commodities, precious metals, cryptocurrencies, indices and more.

Are prop trading firms regulated in Nigeria?

No. Prop trading firms do not deal in securities, which is why there are little to no regulatory and licensing requirements for these firms. Prop firms often provide simulated funded accounts traders can use to buy and sell forex, commodities, indices, crypto, etc.