FINANCIAL RISK MODELING FOR NIGERIAN FOREX BROKERS
Oyekanmi, Dele Jerry, Lukman Ajijola, PhD and Godson, Chukwuwinde Mesike, PhD
Volume 11 Issue 4
Abstract
The rapid expansion of Nigeria’s forex market has exposed traders to significant financial risks, particularly due to the prevalence of unregulated brokers and weak regulatory oversight. This study applies actuarial risk models, including Value-at-Risk (VaR), Conditional VaR (CVaR), Ruin Theory, Credit Scoring, and Monte Carlo Simulations, to assess broker solvency and market risks. Data was sourced from Nigerian forex traders, brokers, regulatory reports, and fraud case analyses. The Central Bank of Nigeria’s (CBN) FX Code and recent legal actions against fraudulent brokers highlight the urgent need for enhanced risk assessment frameworks. Results indicate that high leverage, insufficient capital buffers, and regulatory gaps significantly increase broker default probability. Stress testing and credit scoring models confirm that many brokers operate with unsustainable financial structures. This study recommends stricter capital requirements, real-time fraud detection, and mandatory solvency assessments to align Nigeria’s forex market with global best practices. By integrating actuarial techniques into regulatory policies, market transparency and trader protection can be significantly improved. Keywords: Forex risk, actuarial models, VaR, Monte Carlo simulation, broker insolvency, financial regulation
Download Paper