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Guide to forex trading in Malaysia

Compare the best forex brokers online and start trading in the world's largest financial market from Malaysia.

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warning iconWarning: Forex and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89 % of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

How does forex trading work?

Forex is the abbreviation of foreign exchange, which involves buying and selling global currencies on the foreign exchange market. The goal of forex trading is to make a profit by exchanging one currency for another at an agreed price, for example exchanging Malaysian ringgit for US dollars.

Forex is the world’s most traded market but it can be risky. With this in mind, forex trading tends to suit experienced traders, rather than beginners.

A common way to trade forex is through contracts, such as futures contracts or CFDs (contracts for difference). Rather than buying and holding foreign currency, the trader enters into an arrangement with a broker to profit off any change in the exchange rate between two currencies. Of course, if the exchange rate between the two currencies doesn’t move in their favour, the trader stands to lose money as well.

On the global forex market, all currencies are quoted in pairs. For example, AUD/USD, GBP/EUR and USD/GBP are just a few common pairs. When a trader initiates a forex trade (or ‘opens a position’), it’s as though they are buying one currency and selling another at the same time. If the value of one of the currencies moves against the other, the trader ‘closes out’ their position, selling the other currency and buying back the original currency they sold.

What are the benefits of forex trading?

  • Markets are available 24/7 giving more opportunities to trade
  • Traders can start with a smaller initial outlay compared to other forms of investment

Let’s look at a forex trading example

Say you opened a position with a broker that saw you simultaneously buy Malaysian ringgit and sell US dollars. If the Malaysian ringgit strengthens against the US dollar over the coming days or weeks, you would then seek to close out your position by trading your US dollars for Malaysian ringgit – getting more Malaysian ringgit back than you originally sold. That’s how a profit is realised on forex trades.

Of course, it’s important to remember that at no stage during the above transaction do you actually own or take delivery of the currencies involved in the trade. That’s why forex traded in this way is considered a derivative instrument, because its value is based on an underlying asset, without that asset ever being physically exchanged between the parties.

What forex trading platforms are available in Malaysia?

There are several forex trading services available to Malaysian traders. These include:

  • IG
  • Saxo Bank
  • Interactive Brokers
  • FOREX.com
  • AvaTrade
  • Tickmill
  • Vantage FX
  • OANDA

Before deciding on the right trading platform for you, make sure to compare the fees and benefits of several providers.

How does leverage work in forex?

Forex trades of the type above are typically leveraged, meaning you only contribute a small stake towards the total value of the trade. Most currency contracts are large – the minimum amount you can trade is typically 1,000 units (for example, US$1,000). That’s because currencies’ exchange rates only fluctuate by small amounts – usually by tenths or hundredths of a cent. So to realise any significant profit or loss, you need to trade at high volumes. Leveraged trading (or trading on margin) allows you take out a small stake in a much larger trade, with your broker typically making up the shortfall.

If the exchange rate moves in your favour, you stand to profit off the full amount that was traded, not just your small stake. Of course, it works in the opposite direction as well, so if the exchange rate moves against you, you are liable for the losses incurred off the full value of the trade.

That’s why forex trading is typically considered to suit more experienced and less risk-averse traders. These days, the trading platforms offered by forex brokers are relatively sophisticated and come with a range of features and tools designed to help traders get the most out of their trades.

How much does forex trading cost?

Just like trading regular stocks through an online broker or broking platform, you need to make yourself fully aware of the fees and charges that apply before you begin trading forex.

  • Margin. This could be 0.5%, 1% or some other figure, and this will affect the amount of money you will have to spend to open a forex position. For example, if your account has a margin of 1%, a trade worth US$100,000 will require you to spend US$1,000.
  • Commissions. These fees are generally quite low, such as a few cents per thousand dollars. However, some providers will not charge any commissions on your trades. Other fees may apply to credit and debit card payments.
  • Spread. This is the difference between the buy and sell prices for each currency pair and is effectively what a broking platform will charge you to make a trade. Look for a trading platform that offers tight spreads to minimise the cost involved.

What types of currency pairs are there?

A currency pair is always structured in the same way, following a universally accepted ranking order and always showing the value of a base currency (the first) being traded against a quote (the second) currency.

There are three types of currency pairs that you need to be aware of, these being the majors, minors and exotics.

Which currency pairs should I trade?

Picking the right currency pairs to trade on your account depends on your experience as a forex trader. If you’re new to the game, it’s best to stick with the major and minor pairs. This is because the markets are much more stable and you’ll get lower spreads. Exotic pairs are more difficult to work with because they’re much more erratic and their low liquidity means you’ll see higher spreads.

Whichever currency pairs you decide to trade, simply make sure you’re managing your risk. It’s imperative to understand that while the opportunity for moves may be larger in the exotics, this also means that your risks are amplified if the market moves against you.

How to open a forex trading account

In Malaysia, most forex trading platforms will typically allow you to apply for an account within minutes online. While the application process varies between providers, you will usually have to fill out an online application and then await a response from the provider to learn whether or not your application has been approved.

You will usually have to supply:

  • Your name
  • Your date of birth
  • Your contact details
  • Your address
  • Your country of residence
  • Proof of ID, for example a driver’s licence or passport

What are some common forex trading strategies?

Just like with any other form of investment, there are several strategies you can consider when trading forex, ranging from the basic right through to quite complex approaches. One strategy traders can use is to perform technical analysis or fundamental analysis to try and accurately predict the future performance of currency pairs.

Another common strategy is known as the day trading strategy, and it is based on the simple premise that you do not hold any forex positions overnight. Because the longer you hold open a position the greater risk of you suffering a loss, traders can close all the positions they hold before the end of the trading day and therefore minimise risk.

A third common strategy is support and resistance levels. This involves researching the past fluctuations of a currency and using them to predict future price movements. The previous upper limit of a price is its resistance limit and the previous lower limit is its support limit. This can help traders make an educated guess as to when a currency’s value may rise or fall.

What are some of the risks associated with forex trading?

Before you start trading forex you should make sure that you are well aware of all the risks involved with this sort of trading. These include:

  • Even though you only have to pay a small percentage of the value of your trade upfront, you are still responsible for the entire amount.
  • Foreign exchange rates are volatile and can quickly move against you, causing you to lose a significant amount of money.
  • As markets are open 24 hours a day, you may need to devote plenty of time to tracking any open positions.
  • Predicting currency markets is quite difficult as they can be affected by a wide range of factors.
  • Even stop loss orders which are designed to minimise your losses can only offer limited protection against the risks involved.

Frequently asked questions about forex trading

Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.

Forex trading glossary

  • Ask price. This is the lowest price at which a trader can buy a currency.
  • At best. This is an instruction given to a broker to purchase or sell a currency at the best rate currently available in the market.
  • Base currency. This is the first currency listed in a currency pair. It shows the value of one currency when measured against another, for example MYR/USD.
  • Bear market. A bear market situation is when prices sharply decline.
  • Bid price. This is the price at which an investor can sell a currency.
  • Bull market. This is a market where prices are rising.
  • Forex. An abbreviation of foreign exchange.
  • Hedging. This involves opening a new position in opposition to an already open position in order to protect against exchange rate fluctuations.
  • Leverage. Leverage refers to a trader’s ability to control a large amount of money in the foreign exchange markets after only having to invest a small percentage of the overall value of a trade.
  • Margin. The amount you are required to spend to open a trade.
  • Margin call. This is a warning message when your trading account does not hold sufficient funds to maintain all the positions you have open.
  • Spread. The difference between the bid price and the ask price.

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