Forex is the short form of Foreign Exchange and forex trading is a method of trading in foreign currencies that involves traders (investors) speculating on the value (prices) of these currencies with the hope of making a profit from it.

Forex trading in the Philippines is not regulated. In 2018, the Philippine Securities and Exchange Commission (SEC) released a publication saying that the Forex market in the Philippines is not regulated and is considered illegal.

Although forex trading is not regulated in the Philippines, residents and citizens of the Philippines engage in it with forex brokers that are regulated in other countries (jurisdictions). You are trading at your own risk, but with no form of protection from the government of the Philippines.

Forex brokers are regulated by different financial regulators in different countries. The financial regulators with the most strict rules and protection for traders are Tier-1, for example, the UK Financial Conduct Authority (FCA) and Australian Securities & Investment Commission (ASIC), those with basic protection are Tier-2, for example, the Cyprus Securities and Exchange Commission (CySEC) and Monetary Authority Singapore (MAS), while those with little or no protection are Tier-3, examples include in Financial Services Commission (FSC), Belize, Financial Services Authority (FSA), Seychelles and Financial Services Commission (FSC) British Virgin Island.

Forex brokers are regulated by government agencies (financial regulators) in order to protect the funds and data of clients (forex traders) and minimise the risks and chances of scams. Brokers without any regulation usually have fraudulent tendencies and are considered unsafe for trading.

If you are thinking about trading forex, then it is important to understand the basics of forex trading and how risky it can be. It is also important to trade with a forex broker that is regulated, this will ensure the protection of your funds.

5 steps to start Forex Trading for Beginner Traders in Phillipines

Below are 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 Forex Trading Terminologies
  4. Open your Forex Trading Demo Account
  5. Learn about all the Risks Involved in Forex Trading

In this guide, we will mainly discuss the forex market as it applies to retail traders. We’ll cover some topics that might help you decide whether to trade and learn about the risks involved or simply learn about forex trading. We will also give you summary information about some of the best brokers in the Philippines that accept traders from that country.

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Summary & Comparison of Best Forex Brokers Philippines

Broker Regulation EUR/USD Spread Min. Deposit Visit
IC Markets

FSA Syechelles, CySEC, ASIC.
0.6 pips
$200
Visit Broker
FBS

FSC Belize, ASIC, CySEC
0.8 pips
$1
Visit Broker
FSC BVI, MAS, IIROC, US, ASIC, FCA
1 pip
No minimum deposit
Visit Broker
HF Markets

FSA SVG, FCA, CySEC, DFSA
1.3 pips
$5 or 5,000 PHP
Visit Broker
FSC BVI, CBI, PFSA, FSA, FSCA, ASIC
0.9 pips
$100
Visit Broker
FSC Mauritius, CySEC, CMA, FCA
0.1 pips
$10
Visit Broker

Note: The spread data & minimum deposit is the typical or minimum spread as per information on these brokers’ websites in November 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.

According to the Bank of International Settlement (BIS) survey conducted every three years, the UK accounts for about 43% of forex turnover globally. The forex market participants include businesses, banks, speculators, institutions, etc.

Most of the trading is from banks, businesses & institutional investors. Some of the trade in the forex market are speculative in nature, and a part of them is from retail traders. 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.

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 middleman 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 Philippines to choose from.
However, traders in the Philippines should check the brokers’ websites for any information on regulations to avoid patronizing fraudulent/scam brokerages.

There are two types of brokers. They are classified based on their execution model. Here is the breakdown

CFD Broker Classification

Dealing Desk Broker: Dealing desk brokers take the opposite side of your trades. When you buy a currency pair, they sell. When you sell, they buy. Because of this, when you lose a trade, they make money off it, leading to a conflict of interest. This is why traders tend to prefer non-dealing desk brokers.

Dealing Desk brokers are also known as market makers.

Non-dealing Desk (NDD) Broker: NDD brokers do not take the opposite sides of your trades and they are divided into two. There are NDD brokers that use computerized networks to connect you to buyers/sellers in the market. This type is referred to as an ECN broker.

The second type is the STP brokers. They connect your trades to buyers/sellers via their liquidity pool.

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

The best time to trade the major currency pairs 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 GBP/USD currency pair is when the London & New York sessions overlap. 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 Tokyo).

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. Canadian Dollar – CAD
  6. Australian Dollar – AUD

These currency pairs are not just popular. They are the most traded in the forex market. As at 2019, the U.S. Dollar accounted for 88% of all trades in the forex market.

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.
They usually have the USD on one side of the quote either as the base or quote currency. Examples in order of popularity are:

  1. EUR/USD
  2. USD/JPY
  3. GBP/USD
  4. USD/CAD
  5. AUD/USD

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
  7. AUD/JPY

3. Exotic Currency pairs

These are currency pairs involving a major currency and a currency of a smaller economy. These smaller economies are often referred to as emerging economies. 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 usually on the left while the quote currency will be on the right. Here is an illustration below

Base and Quote Currency

When you go long (buy) on a currency pair, the base currency is being bought while the quote currency is being used to pay for the base currency. It is the other way around when you go short (sell) on a currency pair.

Currencies are always traded in pairs at an exchange rate. The exchange rate is how much of the quoted 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.

Below is an illustration to help you understand

Buy and Sell Price for Currency Pair

Forex brokers quote these two prices on their trading platforms. They are always obvious that you cannot miss them.

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. Basically, it is a markup added to the market price by the broker.

What is Spread in Forex

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.

There are two types of spreads in forex:

Variable spreads: As the name implies, variable spreads are spreads that fluctuate. This fluctuation is due to changes in the condition of the market like high or low volatility. This type of spread is usually offered by NDD brokers as they try to get the best market price for your trades.

Fixed Spreads:These are spreads that remain the same regardless of market conditions. They are usually offered by market makers. Market makers determine the price of the currency pairs they offer. So they can keep the bid and ask price stable no matter the market condition.

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. JPY pairs are usually to the second decimal (e.g. 0.01)

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 & 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.

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 50:1 means that for every $1 a forex trader can trade up to 50 times the size of your deposit, and you can open a $50 trade position using margin money.

Leverage is inversely proportional to margin.

Example:

If margin is 2%, then leverage is 1/2% = 50 (also expressed as 1:50)

Since leveraging means taking a loan, it is a double-edged sword.

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

This is why the leverage that brokers can offer is limited to help minimise losses. Traders in the Philippines can leverage access up to 1,000:1 for CFDs & forex, depending on the broker.

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 50:1, the margin is 1/50 = 2%

Example:

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

USD/CAD Exchange rate = $1.30

Margin = 2%

Required deposit without margin = $130,000 (i.e. 100,000 units x $1.30)

Required deposit with 2% margin= $2,600 (i.e. 2% of $130,000)

After the forex trader deposits $2,600 in his or her account, then the 1 standard lot trade on USD/CAD can be placed.

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. If you have a negative balance after suffering losses on your trades, it will be reset to zero; you will only lose the amount you initially deposited and not owe the broker any money.

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.

Although negative balance protection is usually offered to only retail traders, Tier-3 regulators (under which Philippines traders are registered) do not make it mandatory for the forex brokers to offer it, thus most brokers do not provide negative balance protection in the Philippines, which means that you can lose more than the money you deposit if you suffer a loss and will be required to deposit more money to clear the negative balance.

7) CFDs

CFDs are derivatives, and these are contracts between the broker & trader. Derivatives are complex financial instruments that derive their value from other underlying assets such as Stock, Currency, and Commodities like Gold, precious metals, etc.

When trading CFDs, a trader does not own the underlying asset and is only speculating on the price of the instrument.

8) Hedging

This is the act of managing 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 especially by at least one Tier-1 or Tier-2 financial regulator. There are many brokers that are regulated, 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 AvaTrade as an example. The steps involved are generally the same for all forex brokers.

To start trading on AvaTrade, follow the basic steps below to open a trading account.

Step 1: Visit AvaTrade’s website, www.avatrade.com, and click the ‘Register Now’ button highlighted in orange.

AvaTrade Website Philippines

Step 2: Type in your email address and create a password on the form that appears. Then click ‘Create My Account’ to continue and you will be redirected to the AvaTrade dashboard.

Signup with AvaTrade Philippines

Step 3: Provide your full name, date of birth, address, and phone number, then click the blue arrow button at the end of the form to go to the next page of the registration.

Register on AvaTrade

Step 4: Answer some questions about your finances and employment, select your preferred trading platform and base currency, and then click on the blue arrow button.

AvaTrade Account Currency

Step 5: Check the boxes to declare that you are not a US citizen, that you have read, understood, and agree to the terms, conditions, and privacy policy of the broker, and then click on ‘Complete Registration’.

AvaTrade Account Registration

Step 6: Once you complete registration, you will be redirected to the AvaTrade dashboard.
Here you will upload identity and address verification documents to verify your account.

AvaTrade Account Verification

Once you verify your account, you can add money to your trading account, begin to trade, and withdraw funds.

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.

What are Forex Trading Platforms?

Forex brokers act as intermediaries between traders and the market. When you open a trading account, you will need a platform to analyze CFDs, and place and monitor your trades. These platforms are offered by CFD brokers and they are divided into two categories. They are ‘third-party’ and ‘proprietary’ platforms. A forex broker can have both or one of the categories.

Third-party platforms are trading apps or software developed by another company. Forex brokers partner with these companies to develop these platforms for them. A common example of these is MetaTrader 4, MetaTrader 5, and cTrader. These three are the most popular trading platforms. They are available on mobile phones, desktops, and web-based trading platforms. You can download them from your broker’s website. The mobile versions are available on Google Play Store and App Store.

In addition, there are third-party platforms that allow forex brokers to link their client’s accounts to their own platforms. TradingView is a typical and common example of this kind of platform.

Proprietary platforms are the opposite of third party platforms.They are owned and developed by individual forex brokers. Some forex brokers prefer to develop their own apps and software for traders. They can be available on mobile, desktop, or on the web. eToro, for example, does not have any third-party platforms. They only offer their CFD trading platform and Copytrader.

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 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 in the Philippines should only trade via licensed forex brokers. Traders should go to the regulators’ website and verify if the broker is among the dealers regulated.

Step 1: To verify a broker’s license, go to the broker’s website and check the bottom, where they usually state their regulations. Let’s use FBS as an example.

Forex Broker Regulation Philippines

Step 2: Then go to the regulators’ website to check for the name of the broker in the list and database of licensed forex brokers or securities dealers. Let us use the FBS license in Belize for example.

Go to the FSC Belize website at www.belizefsc.org.bz, click on the License Verification tab, then enter the broker’s name in the search box and the broker’s details will appear.

Verify Broker Regulation in Philippines

2) 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.

Forex traders must be watchful and look out for red flags such as little differences in the broker name.

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

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.

3) Leverage risk

Different financial regulators set leverage restrictions on the max leverage that brokers in those jurisdictions can offer to traders. Tier-3 financial regulators usually set a maximum of about 400:1, 500:1, 1,000:1 or sometimes it is unlimited, depending on the regulator.

This being said, forex traders should resist the urge to open an account with brokers in the Philippines who offer higher leverage as it increases the risks. This restriction is set so that traders do not lose excessively.

Statistics show that even with the leverage restrictions, 70 to 90% of retail forex traders lose all their money. The actual percentage differs with each 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 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.

4) 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.

FAQs on Forex Trading Philippines

What is a forex trader?

Forex trader is a person that engages in forex trading. Forex Trading involves buy and selling currency pairs like EUR/USD, GBP/USD, EUR/GBP etc. A forex trader speculates on the prices of currencies. For example, if a trader thinks that the USD is going to be weaker in the next few weeks against the GBP, then that trader can buy GBP/USD. Forex Trading generally involves leverage, which is very risky as we explain in our guide.

Is Forex Trading Legal in Philippines?

Forex trading in the Philippines is not regulated. In 2018, the Philippine Securities and Exchange Commission (SEC) released a publication saying that the Forex market in the Philippines is not regulated and is considered illegal.

Although residents and citizens of the Philippines engage in it with forex brokers that are regulated in other countries. You are trading at your own risk with no form of protection from the government of the Philippines.

Is forex good for beginners?

Beginners can trade forex, but because forex trading is risky, it is advised that only experienced people should engage in forex trading. More than 80% of retail traders lose all their money trading forex. Beginners can use a demo account and other educational materials to learn to trade and get familiar with beginners before putting in their real money. As a beginner, you should also be cautious when trading by using less leverage and choosing a broker with negative balance protection.

How does forex make money?

You make money from forex trading when the price of a foreign currency rises after you buy it and sell it at a higher price, the difference is your profit.

What is forex trading and how it works?

Forex trading involves buying and selling currency pairs like EUR/USD, GBP/USD, EUR/GBP etc. A forex trader speculates on the prices of currencies. For example, if a trader thinks that the USD is going to be weaker in the next few weeks against the GBP, then that trader can buy GBP, that is the GBP/USD pair.

If the trader is right and the USD becomes weaker, the trader makes profits from the difference. Forex trading generally involves leverage, which is very risky as we explained in our guide.

How do I Start Trading Forex?

You can open your account with any regulated broker and start trading. It is important to understand the risks involved before you trade Forex or CFDs as most traders lose. Also, remember to trade via a forex broker regulated by Top-Tier regulators.

See Regulated Forex Brokers in PhilippinesRead More