FMDQ Traders Introduce New Trading Guidelines To Regulate The Nigerian Forex Market

In recent developments on the FMDQ, the official platform for forex trading in Nigeria, traders have introduced several changes to enhance the market's stability and transparency.

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1. Exchange Rate Management:

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Traders have implemented a new guideline, a +/-5% trading band around the previous day's NAFEX rate. This means that the daily exchange rate cannot deviate more than 5% from the preceding day's rate. This measure is aimed at preventing excessive volatility and safeguarding the market from erratic fluctuations.

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2. Fixed Bid/Offer Spread:

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A fixed bid/offer spread of N50 has been introduced, indicating the controlled trading environment. While this may make trading costs more predictable, it also implies less flexibility for traders to negotiate prices. This change is likely to impact the market's adaptability to sudden shifts in supply and demand.

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3. Standard Ticket Size:

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The establishment of a standard ticket size of $100,000 signifies a shift towards targeting institutional investors and larger transactions rather than retail investors. This move is anticipated to enhance market liquidity, allowing substantial amounts of foreign currency to be traded more efficiently.

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4. Trading Time Adjustment:

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The trading hours have been adjusted to 10 am to 2 pm, reducing the previous window from 10 am to 4 pm. This change could be a strategic move to align with optimal market conditions and promote more focused and efficient trading.

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5. Circuit Breakers and Volatility Band:

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Traders have also introduced circuit breakers, temporarily halting trading if prices hit predefined levels. Additionally, a volatility band has been implemented to restrict the allowable range for exchange rate fluctuations during a trading session. These mechanisms aim to maintain a stable trading environment.

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While these changes are not official FMDQ guidelines, major forex dealers, including banks, are reportedly adopting them. The commitment to transparency is highlighted by the suggestion that the daily trading band can be communicated ahead of the market open, providing market participants with a clear understanding of the permitted trading range for the day.

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These collective measures reflect an effort to address forex market challenges and create a more stable and predictable trading environment in Nigeria.