How To Short Naira On Forex

Editorial Note: While we adhere to strict Editorial Integrity, this post may contain references to products from our partners. Here's an explanation for How We Make Money. None of the data and information on this webpage constitutes investment advice according to our Disclaimer.

To short the naira (NGN), follow these steps:

Open a new Forex account with a reputable broker that supports USD/NGN or sign in to an existing one
Find out which currencies you can short and about the broker's currency shorting options
Research the currency you want to trade, such as USD/NGN
Before analyzing that Forex pair, examine the country's economy
Choose a Forex trading strategy and create a risk-management plan
Choose "sell" if NGN is the base currency or "buy" if it is the quote to start your first position on the broker's shorting currency page

The Forex market offers many opportunities to earn an income, and shorting a currency can be very profitable, especially for those based in Nigeria. Given the Naira's current fluctuations, learning to short the Naira is worthwhile. And to help you in the same, this article discusses how to short the Naira. It also focuses on minimizing the risks involved, shedding light on concepts like risk management, what a short position is, and how to short a currency.

Different ways to short the Naira

Each method of shorting the Naira carries its own risks and requires a good understanding of the market and the instruments being used. It's always wise to seek advice from financial experts before engaging in short selling.

Forex Trading Platforms: Sell currency pairs like USD/NGN or EUR/NGN, predicting the Naira will decrease in value
Futures Contracts: Agree to sell a certain amount of Naira at a future date and price, benefiting if the Naira drops in value.
Options Trading: Purchase put options to sell Naira at a specific price before a certain date, profiting if the Naira declines.
Exchange-Traded Funds (ETFs): Invest in ETFs designed to short emerging market currencies, including the Naira.
Contracts for Difference (CFDs): Trade CFDs to profit from the decline in the Naira's value without owning the currency.
Currency Swaps: Enter a currency swap agreement to exchange Naira for another currency, benefiting from its depreciation.
Borrowing and Selling Naira: Borrow Naira and convert it to another currency, expecting to repurchase it later at a lower value.

How to short Naira: A step-by-step guide

To short the Naira (NGN), follow these steps:

Open or sign in to a Forex account with a broker that supports USD/NGN
Check the broker's currency shorting options
Research the USD/NGN currency pair
Analyze the Nigerian economy
Select a trading strategy and create a risk-management plan
Place a "sell" order if NGN is the base currency or a "buy" order if it is the quote currency

1. Open or sign in to a Forex account with a broker that supports USD/NGN

Create a new Forex account or sign in to an existing one with a reputable broker that supports USD/NGN trading.

We advise you to check out our comparison table to choose the broker that is right for you:

The main trading conditions of brokers for shorting the Naira
	Eightcap	XM Group	RoboForex	Exness	VT Markets
Currency pairs, number	40	57	40	100	55
Allowed in Nigeria
Min. deposit, $	100	5	10	10	100
Leverage, 1:	Up to 1:500	1:30 (only for EU regulated Entity and AU). For all the other countries - 1:1000.	1:2000	1:unlimited for retail clients (Terms and Conditions apply)	Up to 1:500
ECN
Base account currency (NGN)	AUD, USD, GBP, EUR, NZD, CAD, and SGD	EUR, USD, GBP, JPY - depending on the XM entity	USD, EUR, GOLD	EUR, USD, GBP, CAD, AUD, and CHF for all account types; 38 more currencies for non-cent account types	USD, EUR, GBP, CAD, and AUD
Open account	Open an account Your capital is at risk.	Open an account Your capital is at risk.	Open an account Your capital is at risk.	Open an account Your capital is at risk.	Open an account Your capital is at risk.

2. Verify shorting options

Confirm that your broker offers currency shorting options, particularly for the USD/NGN pair.

3. Research the currency pair

Study the USD/NGN currency pair to understand its historical performance and factors influencing its value.

4. Analyze the economy

Examine the economic conditions of Nigeria, including key indicators such as inflation rates, GDP growth, and political stability.

5. Develop a strategy

Choose a suitable Forex trading strategy and formulate a risk-management plan to protect your investment.

6. Place the order

On the broker's platform, initiate a "sell" order if NGN is the base currency or a "buy" order if NGN is the quote currency to start your short position.

What happens if you lack the funds to short the Naira?

Brokers typically offer traders margin trading options based on a few variables. A common requirement among brokers is for a portion of a trade to be held in cash as collateral; and this amount requested can be higher or lower for different brokers. Other factors that brokers consider include:

Type of trading account;
The bare minimum that your trading account contains;
Your trading history and experience. There might be more stringent requirements or lower leverage ratios if you are new to trading or have a short trading history;
Your account's equity and whether it is enough to offset potential losses;
Some brokers might want to know your trading strategy and risk tolerance.

Risks and opportunities of a short position on Forex

Opportunities of short selling on Forex

Profit from a decline in asset prices (currency, stock, commodity) over a short period;
Potential to earn significantly if predictions of price collapse are correct and risks are diversified
Experienced traders can potentially make $2,000-$4,000 a week on shorts. However, a lot of factors come into play when considering success in short selling.

Risks and considerations

Brokers charge interest on loans for short selling, e.g., 13% annually (USD 1,000 loan costs USD 130/year or 0.36 cents/day);
Profits from shorts are limited, but losses can exceed the initial investment;
Brokers use margins to manage risk, and in a bad trend, they may take collateral to cover losses;
A short squeeze occurs when traders close short positions to avoid further losses, causing the asset price to rise rapidly. This risk is unavoidable despite careful economic analysis.

When should I short Naira?

While shorting the Naira can offer substantial returns, it requires a deep understanding of Nigeria's economic landscape and careful monitoring of relevant indicators. This strategy is best suited for those with a high-risk tolerance and the ability to respond quickly to market changes. If you're learning to short the Naira, consider these factors that could cause it to fall against other currencies:

Economic performance. The strength of Nigeria's economy and interest rate forecasts;
Currency supply and demand. Affected by central bank actions and economic policies;
Dollar supply shortages. Widen the gap between official exchange rates.

Сomponents of a successful Naira shorting

The Naira is influenced by economic indicators, political stability, and market demand for foreign currencies, especially the US dollar. Nigeria has faced challenges like inflation, fluctuating crude oil prices, and trade deficits, affecting the Naira's value. The 2022 Naira redesign highlighted its vulnerability to policy changes and economic instability.

To short the Naira effectively, you need to monitor:

Interest rate changes. Decisions by the Federal Reserve or the Central Bank of Nigeria;
Economic indicators. Trade deficits, public debt, and inflation periods;
Political climate. Political unrest, policy shifts, and geopolitical events;
Market demand for foreign currencies. High demand for dollars, especially when supply is limited.

Managing risks is important when shorting the Naira

Managing risks is crucial when shorting the Naira to avoid significant losses. Use strategies like setting stop-loss orders, diversifying your investments, and closely monitoring market conditions.

Additionally, ensure you have a solid understanding of the instruments you're using and consider seeking advice from financial experts.

Lock in a price to sell Naira at a future date

From my perspective, shorting the Naira can be an effective strategy if you anticipate its decline in value. The best options to short the Naira include Forex trading, futures contracts, and options trading. Forex trading allows me to trade currency pairs like USD/NGN, benefiting from the Naira’s depreciation. Futures contracts lock in a price to sell Naira at a future date, potentially profiting if the Naira weakens. Options trading, specifically put options, gives the right to sell Naira at a predetermined price, providing flexibility and control over potential losses.

Additionally, you can find Contracts for Difference (CFDs) and currency swaps to be viable alternatives. CFDs enable me to speculate on the Naira's price movement without owning the actual currency, while currency swaps allow me to exchange Naira for another currency, expecting to repurchase it at a lower value. Each of these methods has its advantages and risks, requiring a solid understanding of market dynamics and risk management. My choice of approach depends on my trading experience, risk tolerance, and market outlook.

Summary

Shorting the Naira (NGN) on the Forex market involves speculating that the value of the Naira will decrease relative to another currency. The best options to short the Naira include Forex trading, futures contracts, and options trading. Managing risks is crucial when shorting the Naira to avoid significant losses. Use strategies like setting stop-loss orders, diversifying your investments, and closely monitoring market conditions.

FAQs

What tools can I use to analyze the Naira market before shorting it?

Traders can use technical analysis tools such as charts and indicators (Moving Averages, RSI, MACD) and fundamental analysis considering Nigeria's economic indicators (inflation rates, GDP growth, political stability, oil prices).

What risks are associated with shorting the Naira on Forex?

Key risks include market volatility, leverage risks (amplifying both gains and losses), political and economic instability in Nigeria, and unforeseen global economic events that can impact currency values.

How do I manage risk when shorting the Naira?

Managing risk involves using stop-loss orders to limit potential losses, setting take-profit orders to lock in profits, leveraging conservatively, and continuously monitoring market conditions and news that might affect currency values.

Can I use leverage when shorting the Naira, and how does it work?

Yes, leverage is commonly used in Forex trading to amplify both potential gains and losses. For example, with 1:100 leverage, you can control a $10,000 position with just $100 of your own capital. However, higher leverage increases risk, so it should be used carefully.

Team that worked on the article

Chinmay Soni is a financial analyst with more than 5 years of experience in working with stocks, Forex, derivatives, and other assets. As a founder of a boutique research firm and an active researcher, he covers various industries and fields, providing insights backed by statistical data. He is also an educator in the field of finance and technology.

As an author for Traders Union, he contributes his deep analytical insights on various topics, taking into account various aspects.

Learn about our editorial policies

Dr. BJ Johnson is a PhD in English Language and an editor with over 15 years of experience. He earned his degree in English Language in the U.S and the UK. In 2020, Dr. Johnson joined the Traders Union team. Since then, he has created over 100 exclusive articles and edited over 300 articles of other authors.

Mirjan Hipolito is a journalist and news editor at Traders Union. She is an expert crypto writer with five years of experience in the financial markets. Her specialties are daily market news, price predictions, and Initial Coin Offerings (ICO).

Cryptocurrency

Cryptocurrency is a type of digital or virtual currency that relies on cryptography for security. Unlike traditional currencies issued by governments (fiat currencies), cryptocurrencies operate on decentralized networks, typically based on blockchain technology.

CFD

CFD is a contract between an investor/trader and seller that demonstrates that the trader will need to pay the price difference between the current value of the asset and its value at the time of contract to the seller.

Chinese Yuan

The yuan (CNY) is the official currency of the People's Republic of China. The yuan is divided into 10 jiao, which are further divided into 10 fen.

Economic indicators

Economic indicators — a tool of fundamental analysis that allows to assess the state of an economic entity or the economy as a whole, as well as to make a forecast. These include: GDP, discount rates, inflation data, unemployment statistics, industrial production data, consumer price indices, etc.

Volatility

Volatility refers to the degree of variation or fluctuation in the price or value of a financial asset, such as stocks, bonds, or cryptocurrencies, over a period of time. Higher volatility indicates that an asset's price is experiencing more significant and rapid price swings, while lower volatility suggests relatively stable and gradual price movements.

Top 5 companies for you