Forex trading is not regulated in Malaysia yet. Hence, every forex broker that accepts traders from Malaysia is unregulated by the SCM (or the Securities Commission Malaysia).

The Securities Commission Malaysia (SCM) is the statutory regulatory body that oversees financial markets in Malaysia, however, they have not allowed & regulated any retail forex brokers operating in the country.

For ensuring that your funds are safe, retail traders from Malaysia should not trade forex online till there is a local regulation.

But the traders who trade currently, should only trade through forex brokers that are regulated by top-tier foreign financial regulators such as the FCA of the UK and the ASIC of Australia and the CySEC of Cyprus.

The more heavily regulated the broker is, the better it is for Malaysian traders. Hence, you should always check the licenses held by the broker before trading with them.

Also, it is important to understand that forex & CFD trading is very risky, and almost 70-80% of retail traders lose their money when trading at different CFD brokers in Malaysia. Hence, if you are thinking about trading forex, then you must learn about the risks as well.

5 steps to start Forex Trading for beginner traders in Malaysia

Below are the some of the points that you need to know for learning everything about forex trading:

  1. Learn about the Basics of Forex Market
  2. Understand how Currency Pairs work
  3. Learn the Forex Trading Terminology
  4. Open your Forex Trading Demo Account
  5. Learn about all the Risks Involved in Forex Trading

In this guide, we will mostly discuss from the point of view of retail traders in the forex market. We will try to cover some of the topics that can help you decide if you should trade, and learn about the risks involved. Or simply learn about forex trading.

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Summary & Comparison of Best Forex Brokers Malaysia

Broker Regulation EUR/USD Spread (pips) Min. Deposit Visit
OctaFX

CySEC
0.8
MYR 100 Visit Broker
HotForex

SV, FCA, DFSA, FSCA, FSA
1.1
MYR 50 Visit Broker
Pepperstone

CySEC, ASIC, DFSA, SCB, FCA
0.8
MYR 45 Visit Broker
Oanda

MAS, FCA, Malta FSA, FSC BVI, ASIC
1.1
MYR 0 Visit Broker
FXTM

FSCA, FSC Mauritius, FCA, CySEC
1.9
MYR 45 Visit Broker

Note: The spread data & minimum deposit is the typical spread as per information on these brokers’ websites in July, 2022. Please see our methodology below.

What is Forex Market?

The foreign exchange market alias forex or FX market is a global, online over the counter (OTC) market where currencies of about 170 countries are bought and sold. It is open 24 hours a day. It is the biggest financial market in the world and has very high liquidity. The forex market participants include multi-national businesses, banks, speculators, financial institutions, etc.

Most of the trading is from banks, multi-national corporations, and institutional investors. Some of the tradings in the forex market is speculative in nature, and a part of it is from retail traders. Retail traders are individual and independent traders who trade with their own money. Retail traders come to the forex market to speculate, hedge against currency and interest rate risk, etc.

The activities that take place in the forex market are what determine the exchange rate of any currency pair. The higher the demand for a currency, the higher its exchange rate. This means that a currency which is being bought more than it is being sold, will witness a rise in its value against other currencies.

Forex market participants

The forex market ecosystem teems with a lot of participants. Let us discuss some of them.

1) The forex broker

The forex broker is a regulated participant who acts as a bridge between the forex trader and the market.
The broker is a middle man who places buy and sell orders for retail traders and some brokers also offer research services as well if required by the trader. The forex broker charges a fee for their services.
That being said, retail traders need to pass through a forex broker that accepts retail traders if they are to access the market. There are several forex brokers in Malaysia to choose from.
However, traders from Malaysia should check the licenses held by forex brokers to avoid patronizing fraudulent/scam brokerages. Traders from should only trade with brokers who have tier-1 (such as FCA or ASIC) or tier-2 (such as CySEC) licenses.

2) The Retail Forex Trader

Retail forex traders are individual investors who wish to trade in the forex market for personal gain. They don’t trade on behalf of an organization or company. They account for an estimated 5.5% of the global forex market as per BIS data.

Retail traders are in the market mostly for speculative reasons. They hope to profit from differences in exchange rates between currencies.

3) Central Banks

Their presence in the forex market is to create policies that can affect the currency, intervene and stabilize the currency through increasing or decreasing interest rates, performing Open market operations in some situations etc.
Central banks can also devalue their currency to make exports of their country more competitive to international buyers. In short, the Central bank plays a major role in deciding the value of a currency.

4) Commercial Banks

Commercial Banks make up the interbank market where they trade forex with other banks in very large volumes. These volumes are large enough to dictate the bid and ask prices for any currency. They trade on behalf of themselves and their customers.

5) Multinationals

Big companies that operate in different parts of the world have to trade in the forex market to hedge risk and also for business purposes.

A company hoping to buy raw materials from another part of the world may need to convert its currency to be able to pay the supplier at the other end.

Big companies who have business operations in other parts of the world may also want to convert and repatriate their profits in a stronger currency to hedge against the risk of currency depreciation.

Forex Market Time Zones

The forex market operates in four different time zones-

  1. Sydney (10pm GMT to 7am GMT)
  2. Tokyo (11pm GMT to 8am GMT)
  3. London (7am GMT to 4pm GMT)
  4. New York (12pm GMT to 9pm GMT)

Depending on the currency that you want to trade, some sessions can be better than others. Most of the trading is carried out in the London & the New York sessions.

The best time to trade the majors is when some of the major sessions overlap. At this time, market participation and liquidity are high, and spreads are at their lowest.

For example, the ideal time to trade the EUR/USD currency pair, is during the London & New York sessions, because at that time liquidity in the market is highest.

If you are trading JPY based pairs, then you will also find liquidity during the Asian session.

As a trader from Malaysia, it is recommended that you trade currency pairs involving AUD and other Asian currencies like JPY during the day, and trade currency pairs involving USD and EUR currencies during the night.

What are Currency Pairs?

All the countries participate in the forex market and their currencies are represented as three-letter codes.

However, we will focus on the popular currencies here. The popular currencies and their codes are listed below:

  1. U.S Dollar – USD
  2. Great Britain Pound- GBP
  3. Euro- EUR
  4. Japanese Yen- JPY
  5. Swiss Franc- CHF

Forex Currency Pairs

Forex currencies are traded in pairs written as Base Currency/Quote Currency – GBP/USD

Currency pairs could be major, minor, or exotic. Let us discuss them below.

1. Major currency pairs

The major currency pairs quote the USD alongside another major currency. The USD is part of 90% of all trades in the forex market.
They usually have the USD one side of the quote either as base or quote currency. Examples in order of popularity are:

  1. EUR/USD
  2. USD/JPY
  3. GBP/USD
  4. USD/CHF

2. Minor Currency pairs

These are currency pairs of strong economies that do not contain the USD. Examples are

  1. EUR/GBP
  2. GBP/JPY
  3. GBP/CHF
  4. EUR/CHF
  5. EUR/JPY
  6. CHF/JPY

3. Exotic Currency pairs

These are currency pairs involving a major currency and a currency of a smaller economy. Examples are

  1. USD/SEK- USD/Swedish Krona
  2. USD/DKK- USD/Danish krone
  3. USD/ZAR- USD/South African Rand
  4. USD/KES- USD/Kenyan Shilling
  5. USD/NGN- USD/Nigerian Naira

Reading a Forex Quote

Forex currencies are traded in pairs written as Base Currency/Quote Currency i.e. GBP/USD

The base currency is the currency being bought while the quote currency is the currency used to pay for the base currency.

Currencies are always traded in pairs at an exchange rate. The exchange rate is how much of the quote currency is required to buy the base currency.

Assume the GBP/USD exchange rate = 1.2

This means that it will take $1.2 to buy one GBP and vice versa.

While trading forex, we use one currency to buy another hence we can also quote the currencies in terms of BID/ASK prices

The Bid price is the highest price a forex trader is willing to pay to buy the base currency from the broker.

The Ask price is the lowest price the forex broker is willing to sell the currency.

Forex Trading Terminology

Certain terms are widely used in forex trading and understanding is very important. We shall discuss some common terms below.

1) Spread

Spread is the difference between the bid price and the Ask price of a currency pair.

 

Spread

As seen in the image above the GBP/USD currency pair with a Bid/Ask price of 1.3089/1.3091 has a spread of 1.3089-1.3091 = 0.0002

Your forex broker may not always charge you a commission but makes their profit from the spread.

A spread of 0.0002 means if you are trading in a standard lot of 100,000 units of GBP/USD currency, the forex broker makes $20 on every standard lot traded i.e. 0.0002 x 100,000

2) Pips

Percentage in point alias “pips” is the unit of measurement for the spread.

As seen in the example above, if the spread is 0.0002 it is conventionally expressed as 2 pips. This is for a currency up to the fourth decimal.

3) Lots

Forex currency pairs are traded in lots at forex brokers.

Since the currencies don’t move by a lot, the traders tend to trade a higher number of units. Remember, the higher the traded volume, the larger the profit and the loss.

Currency pairs are divided into various lots as seen in the table below.

Lot Number of units of currency
Standard 100,000
Mini 10,000
Micro 1,000

Standard lot example:

For a GBP/USD currency pair with details below-

Exchange rate = $1.36
Standard lot = 100,000 units
The margin needed for trading 1 standard lot will be $136,000 (i.e., $1.36 x 100,000)

Mini lot example:

For a GBP/USD currency pair with details below-

Exchange rate = $1.36
Mini lot = 10,000 units
The balance required for trading a Mini lot will be $13,600 (i.e. $1.36 x 10,000)

So, the margin that you need to trade depends on the total lots or units that you are trading. If you are trading 2.5 Mini Lots, this means that you are trading 25,000 units of a currency.

4) Leverage

Leverage in forex trading is essentially taking a loan from your forex broker to trade most lots. The loan is repaid after you sell and make a profit or a loss.

Leverage

Most retail forex traders don’t have the required capital to buy or sell thousands of units of currency pair, so they leverage their position. But this is very risky and can result in huge losses.

Leverage of 1:30 means for every $1 a forex trader can trade up to $30 position using margin money.
Leverage is inversely proportional to margin.

Example:

If margin is 3.33%, then leverage is 1/3.33 = 30 (also expressed as 1:30)

Since leveraging means taking a loan, it is a double-edged sword. Even though leverage allows you to make higher profits, the loss can also be higher.

For example, if you lose big on a trade, and if the forex broker does not have Negative balance protection in place, the trader may have to repay more than the initial capital if the losses exceed capital.

You should remember that forex trading is not regulated in Malaysia. Hence, forex brokers operating in Malaysia can offer very high leverages to traders from Malaysia (for example, some brokers offer as high as 1:2000 leverage).

Trading with such high leverage is very risky and should be avoided. Ideally, you should not trade with more than 1:30 leverage for forex (as capped by major regulators such as the FCA, ESMA & ASIC).

5) Margin

This is a good faith deposit a trader must keep in his trading account. It is expressed as a percentage and is inversely proportional to leverage.

Margin % = 1/Leverage

For leverage of 30:1, the margin is 1/30 = 3.33%

Example:

If a forex trader uses leverage to place a buy order of 1 standard lot of GBP/USD currency pair

GBP/USD Exchange rate = $1.33

Margin = 3%

Required deposit without margin = $133,000 (i.e. 100,000 units x $1.33)

Required deposit with 3.33% margin= $4428.9 (i.e. 3.33% of $133,000)

After the forex trader deposits $4,428.9 in his or her account, then the 1 standard lot trade on GBP/USD can be placed.

Similar to leverage, the margin requirement is also not regulated in Malaysia. Brokers can offer extremely low margins which may not be in the best interest of traders. You should not trade with margins lower than 3.33% (as recommended by the FCA).

6) Negative Balance protection

This is a system put in place by forex brokers to ensure your account doesn’t go into negative when the market moves against you quickly.

Once you lose the deposits in your CFD trading account, the brokerage system automatically closes all your positions.

It limits your loss to just your capital and ensures that the forex broker does not take the risk of your position. Negative balance protection is offered to only retail traders and not institutional traders.

You should remember that forex trading is not regulated in Malaysia. Hence, it is not legally necessary for CFD & forex brokers to offer negative balance protection to traders from Malaysia. This can mean that traders from Malaysia can lose more money than they have in their trading accounts.

Hence, you should only trade through brokers that offer negative balance protection to Malaysian traders.

The best way to confirm this is to visit the broker’s website and contact their customer support team. You should ask them whether they offer negative balance protection to traders from Malaysia. If they don’t, then you should not open an account with them.

As you can see, we contacted the customer support team at XM and asked them the same question. Their response was affirmative.

7) CFDs

CFDs are derivatives, and these are contracts between the broker & trader. Derivatives are complex financial instruments that derive their value from another underlying asset such as stocks, currencies, commodities like oil, precious metals, etc.

When trading CFDs, a trader does not own the underlying asset and is only speculating on the price of the instrument. This allows the trader to profit (or loss) from changes in the value of the underlying asset.

8) Hedging

Hedging is a way to manage risk.

Traders sometimes trade derivative instruments such as currency futures and currency options to hedge against currency and interest rate fluctuation risk.

9) Day Trader

This is a trader who opens and closes trading positions on the same day.

Day traders are usually speculators and use derivative products like CFDs to try to profit from the rise or fall of the price of an asset.

How to Open Forex Trading Account?

To open a forex trading account, you need to first choose a reputed broker that is regulated by top-tier regulators such as the FCA, ASIC, or CySEC. This is especially important since forex brokers are not regulated in Malaysia. There are many brokers that are regulated by top-tier foreign regulators, so you should compare factors like the safety of funds, fees, platforms, instruments, support, ease of withdrawals, etc.

Once you have decided on the forex broker that you want to choose, then you should proceed with opening your trading account. We will take Pepperstone as an example. The steps involved are generally the same at all forex brokers.

Step 1) Compare the Forex Brokers: This step is basically checking the regulation, fees (spreads and commission), available trading instruments, trading platforms, and other factors.

After you have done your research on the broker that you want to trade with then proceed to the next step.

As a Malaysian, you should check whether the broker offers their services in Melayu, whether they have a dedicated website for Malaysian traders, and whether they offer convenient deposit and withdrawal options to Malaysian traders.

Step 2) Open your Trading Account: Go to the website of the broker that you want to signup with.

On the website on the broker, go to the “Open Account” section, and complete the signup process.

Pepperstone Home Page

 

Step 3) Submit your documents for KYC: All regulated brokers are required to complete the KYC of trading clients.
You will be required to submit details like your ID proof & Address Proof. The brokers generally verify it in 48 hours i.e. 2 working days.

Step 4) Download the Platform: All brokers offer platforms like MetaTrader or their own proprietary platforms. Most forex brokers offer multiple platforms. You can use these platforms through your desktop, laptop, web browser, tablet, or smartphone.

 

Download Trading Platform

You will generally get an email from the broker regarding the details on how to download a login to your platform.

Step 5) Deposit Funds: You can choose methods like a card or bank transfer for depositing. Watch out for brokers that charge extra fees during deposits.

A lot of brokers offer the option of bank transfer to Malaysian traders. This means that you can directly deposit your funds through bank transfer to your bank account. Otherwise, you can also deposit funds using your debit or credit bank. You should always check the deposit and withdrawal methods available with a broker to see if it’s suitable for your needs.

Also, avoid any brokers that charge excessive withdrawal fees. Some brokers claim to charge low trading fees, while charging excessive charges on withdrawals & deposits, making their overall fees very high.

Risks Involved in Forex Trading

The forex market is very liquid and this liquidity has caused a lot of traders to throw caution to the wind and even become greedy.

Most retail traders trade forex because of leverage, and this can cause losses to escalate very quickly.
Let us discuss some risks.

1) Risk of No Local Regulation

As mentioned earlier, retail online forex brokers are not regulated by the SCM of Malaysia. This means that the popular forex brokers that operate in Malaysia are operating without any oversight & don’t have to follow strict regulatory standards.

Hence, traders who register with foreign forex brokers are doing so at their own risk. These brokers can, technically, scam you and you would have no legal recourse against them in any Malaysian court.

Hence, you should at least be very careful of trading only through reputed forex brokers who are regulated by top-tier foreign forex regulators like the FCA of the UK, the ASIC of Australia, and the CySEC of Cyprus.

2) Risk of Unlicensed Forex Brokers

There are lots of unlicensed brokers who lure unsuspecting traders with promises of huge returns with low investments.

Some of them claim to hold licenses from regulators in countries that are not known for strong regulatory supervision.

Forex traders from Malaysia should only trade with brokers regulated by top-tier financial regulators. Traders should go to the regulator’s website and check if their broker is on the list of licensed forex brokers. For example, suppose a broker website claims that they are regulated by the FCA. Then, traders should cross-check the information and license number by visiting the FCA’s website. We’ve used Pepperstone in this example.

Pepperstone FCA Website

 

You should cross-check the license number provided on the broker’s website with the license number (or reference number) provided on the regulator’s website.

 

3) Risk of Cloned Forex Brokers

Some scam forex brokers go ahead and clone other licensed brokers.

They go as far as hosting websites with logos and registration numbers to deceive unsuspecting targets. The image below shows the FCA issuing a notice to the UK public about a cloned Pepperstone forex broker website.

 

Pepperstone Clone Notice

Forex traders must be watchful and look out for red flags such as little differences in the broker name as can be seen in the image above (pepperforeign instead of pepperstone). Forex traders should also report any cloned page they come across to the regulator.

Scam brokers do exist so you should be wary of them and report anyone you come across to the regulator.

The first two risks that we discussed are associated with the risk due to a third party I.e. your broker. We will now talk about the risks that you face with actual trading.

4) Leverage risk

Reports state that event with the leverage restrictions, 70 to 80% of retail forex traders lose money. The actual percentage depends on the broker to broker.

This is mainly because of over-leveraging a position. Traders must avoid using more than 1:10 leverage on any forex trade.

Let’s take an example, let’s say you place a buy order on EUR/USD at 1.1000 targeting 1.1100, which is 100 pips. You have $10,000 in your trading account & you decide to use 1:10 leverage to place 1 Standard lot trade.

If the price does go in your direction, then you can make a profit of $1000 on this trade. But if the price goes against you by let’s say 100 pips, then you would lose $1000, which is 10% of your capital. If you had used 1:30 leverage, then the losses would have been $3000, which is 30% of your capital on a single trade.

Hence, you must remember that trading with excessive leverage can cause big losses.

The use of leverage should be done responsibly as it amplifies both gains and losses. You should find out if your broker offers negative balance protection so as to stop your account from going into negative.

You can also use Stop Loss orders to automatically exit a position if the loss exceeds are a certain level. Stop-loss orders are automated instructions a trader gives the broker to exit his trading position once the price goes below a predetermined amount. Stop-loss orders could be used to manage risk.

5) Risk of Losses from your trades

The forex market is very volatile and should be approached with caution. For example, it is not uncommon for some currency pairs to move 4%-5% in a day.

Normally, even majors like EUR/USD can move 1-2% in a single day. If you are risking too much on a single trade, then you can lose very quickly.

In fact, most of the retail traders trading in the forex market lose their money. It is really hard to be profitable with forex trading, mostly because traders trade with gamblers’ nature of risking excessively.

It is really important to practice risk management on a demo account for some months before going live. Also do not risk more than 2% of your trading capital on one trade. Further, don’t use too much leverage. The recommended amount of leverage is 1:30.

FAQs on Forex Trading Malaysia

Is forex trading legal in Malaysia

Forex trading is still unregulated in Malaysia. This means that the SCM (or Securities Commission of Malaysia) has not provided any rules or guidelines which forex brokers need to follow when they operate in Malaysia. Hence, even though Malaysian traders can legally trade through foreign forex brokers, they do so at their own risk since there is no legal protection.

Where can I trade forex from Malaysia

There are several online forex brokers that offer their services to Malaysian traders. Some of these brokers include XM, OctaFX, and Pepperstone.

Which forex broker is best in Malaysia?

There are several good forex brokers that offer their services to Malaysian traders. You should do your own research before registering with a broker. Some of the factors that you need to consider are whether they have a dedicated Malaysian website and whether they offer convenient deposit and withdrawal options. A few of the best forex brokers for Malaysian traders are XM Trading, Pepperstone, AvaTrade, and OctaFX.

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