Dollar arbitrage is a form of currency arbitrage where the U.S. dollar acts as a vital pecuniary instrument for plying the arbitrage. Since the U.S. dollar is a popular currency against which the values of other global currencies can be measured, it is never a bad idea to consider an arbitrage venture that relies significantly on this currency.

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At the time of writing this post, $1 exchanges for naira at the rate of #415, as per the official rate of the CBN. While this is a clear indication that the U.S. dollar is a much stronger currency than the naira, it may further buttress the assertion that dollar-based currency arbitrage is a profitable business to do in Nigeria. As a plus, the U.S. dollar is a globally popular currency for which you can easily find buyers across currency exchange platforms within and beyond Nigeria.

In its simplest definition, dollar arbitrage in Nigeria is a business involving the use of naira to purchase dollars that you eventually sell for profit. This business, by extension, incorporates the strategy of purchasing the dollar at a favourably low rate and then reselling (usually almost immediately) at a rate that earns you a profit. While profit-making may seem easy to fantasize about business in Nigeria, this might not be the case in reality as most people are not willing to exchange their dollars for the naira at low rates.

But before that, here is an overview of the business of arbitrage in general.

Arbitrage is defined as an attempt to profit from price disparities through the simultaneous purchase and sale of an asset (currency, security, etc.) in different markets. In that wise, arbitrage opportunities refer to the anomalies arbitrageurs deem favourable and which occur due to market inefficiencies. Such anomalies may manifest as price discrepancies across markets, thereby paving the way for arbitrageurs to profit from buying assets from markets with lower prices and reselling (almost quickly) in markets where the assets are highly-priced.

Arbitrage is a kind of complex trade-specific business and so, there are lots of strategies that arbitrageurs can adopt in their bid to harness arbitrage opportunities and maximize profitability in the long run. These strategies may be alternatively seen as forms of arbitrage trading or the different types of arbitrage trading strategies.

To broaden your understanding of arbitrage, we’ve listed out and explained seven of the common types of arbitrage strategies.

Starting Dollar Arbitrage in Nigeria: What Are the Requirements Needed?

Every business has its own startup requirements. In the case of dollar arbitrage business, the requirements needed to start the business in Nigeria are as follows:

A standard laptop or smartphone with a reliable Internet connection
An active Payoneer or PayPal account –In this post, a Payoneer account will be used. We consider the Payoneer account as the more befitting option because it comes with a free virtual account that enables you to directly receive funds in foreign currencies such as pounds, euro and the U.S. dollar
A means for generating funds for the dollar arbitrage business. This means could be a platform or medium from which you can purchase the U.S. dollar at a reduced price. In another way, it could be an online activity that will fetch you the currency. This activity could be content creation or just any digital skill that enables you to work online and earn dollars directly into your Payoneer account
Another platform –probably an exchange platform –for reconverting the dollar into naira at a higher rate. In this post, we will use Grey.co (formerly known as Aboki. Africa) for this purpose

Here is a detailed guide on how to open Grey.co Account

Getting Started with Dollar Arbitrage Business in Nigeria –Here Are the Steps

It isn’t difficult to master the right strategy for doing the dollar arbitrage business in Nigeria. But if you ever think it is difficult, this post will most likely convince you about how easy it is to master dollar arbitrage in Nigeria.

Here are the essential steps to get started with the business:

Create a PayPal or Payoneer account. This account is needed for receiving payments in dollars. Considering the reason we gave earlier, a Payoneer account would be the better option. Here is a link to find out the steps for creating a Payoneer account
Create a Grey. co account. Grey. co is notably a Nigerian currency exchange platform formerly known as Aboki.Africa. Follow the link here to learn how to create a Grey. co account
Begin to purchase the U.S. dollar at a reduced price from friends, family or trusted sellers (on exchange platforms such as Binance). You should employ your bargaining power in such a way that you can purchase dollars at a favourable rate. In this dollar arbitrage business, the Payoneer account you created will be needed for converting the dollars into GBP.

Importantly, you really need to make good use of Payoneer and Grey. co in order to succeed in this dollar arbitrage business. While Payoneer will enable you to convert your purchased dollars into the British pound, which is a more valuable currency than the U.S. dollar, Grey. co is a great platform for you to reconvert the pound into naira at a high rate.

Is Dollar Arbitrage Business Profitable in Nigeria?

You may be clueless as to deciding the best strategy that enables you to profit maximally with the dollar arbitrage business in Nigeria.

This is partly due to the fact that it may be difficult to find sellers (Nigerians) willing to sell the U.S. dollar to you at a very low rate. In a scenario whereby the seller you’re approaching bought the U.S. dollar #430 per dollar (or another rate higher than the official CBN rate), they’ll most likely want to sell to you at a higher rate so that they can make a profit. If the seller eventually sells to you at the rate of #460 per dollar, they will make a #30 profit on each dollar from the amount sold, whereas your own only chance of making a profit is to resell at a rate higher than #460 per dollar.

However, you can make a profit from your dollar arbitrage business in Nigeria without having to look for people who would buy the dollar at a higher rate. This is definitely the point where the arbitrage strategy of cashing in on exchange rate differentials between currencies (the U.S. dollar and the British pound in this case) comes into play. By extension, this would convince you that the dollar arbitrage business is profitable in Nigeria when approached with the right strategy.

How then do you profit if you don’t need to seek high-paying buyers for your dollars?

Well, you’ll make your profit by leveraging Payoneer to convert your dollar into GBP and then reconverting the GBP to naira via Grey. co. Why this works is that the British pound (GBP) is a more valuable currency than the U.S. dollar and provided you purchase your dollar at a rate lower than the exchange rate of GBP to naira on Grey. co, you’ll likely profit from converting the GBP to naira. As per Grey. co (Aboki. Africa) rates, GBP exchanges for the Nigerian naira at a price higher than #700 while the U.S. dollar exchanges for naira at a price lower than #600. What this means is that you’re likely to make a profit in excess of #100 each time you purchase a dollar (with your naira) and convert the dollar to GBP before reconverting to naira through Grey. co.

For you to understand the foregoing explanation better, below is a trading scenario:

Mr B purchases 5,000 dollars from Mr A at the rate of #415 per dollar. If Mr C (we suppose that you’re Mr C) offers to purchase the dollars from Mr B at a rate of #450 per dollar, Mr B may be willing to sell since that will earn him a profit of #35 per dollar (alternatively #175,000 from the $5,000 that will be sold to Mr C). Mr C, on the other hand, will have to fork out as much as #2,250,000 in exchange for Mr B’s $5,000.

Instead of selling the dollars directly, Mr C will –by virtue of the arbitrage strategy in this post –have to convert them to GBP via Payoneer. After the conversion (wherein the exchange rate is $1 equals 0.808544 GBP), Mr C now has 4,042.72 GBP. Since the GBP is more valuable than the USD, Mr C will likely profit by exchanging the GBP for Grey. co (formerly Aboki. Africa) for naira. $1 exchanges for #570 while 1GBP exchanges for #744 on Grey. co. This indicates a difference in excess of #150 between the exchange values of USD and GBP on Grey. co.

To reconvert your GBP (4,042.72 GBP) to naira, you’ll first have to visit your Grey. co account. Then, copy your Pounds (or GBP) Account Number. After that, you’ll have to move the 4,042.72 GBP from your Payoneer account to your Grey. co GBP account. Now that the GBP is in your Grey. co GBP account, the final thing to do is to withdraw it into your local bank account in Nigeria. Since the GBP-to-naira rate here (as obtained on Grey. co) is #744, you’ll have #3,007,783.67999.

Since you (Mr C) paid #2,250,000 to purchase $5,000 which you converted to 4,042.72 GBP and later reconverted to #3,007,783 naira (at a rate of #744 per GBP) via Grey. co, we can estimate your profit as #757,783. Although this would not be your exact profit due to the conversion fee (by Payoneer) and certain other transactional fees, you’ll still make a reasonable profit from the deal.

Conclusion

We hope you have had a full grasp of what dollar arbitrage in Nigeria entails and how you can profit from the business without the need to resell the dollar you purchased. But if you want more clarification on how dollar arbitrage is done in Nigeria, you may ask questions in the comment section below.