What Is Forex Trading And How Does It Work?
The word forex is a combination of two standalone words foreign exchange. When an exchange of currencies involves profit or loss, it is called forex trading. Coupled with modern living standards and increased wealth exposure, numbers of Malaysian traders with an interest in forex trading have increased significantly over the last few years. Traders exchange currencies and make a profit from the fluctuation of the exchange rate.
In forex trading, you can trade currencies in pairs such as GBP/USD, AUD/NZD, MYR/SGD, etc. That means you sell your base currency and buy the quoted one. The currency of each country has a unique three-letter code, such as GBP, MYR, USD. The rate of a currency pair reflects the value at which the base currency is available to be sold against the quoted currency.
Let’s understand the notion using a simple example;
Suppose you wish to buy the Great Britain Pound (GBP) against the Malaysian Ringgit (MYR), you will have a currency pair quoted as GBP/MYR = 5.46 In this currency pair, GBP is the base currency that you can buy against the quote currency (MYR) by spending 5.46 Malaysian Ringgit.
The exchange of currencies occurs in the forex market. To access the forex market, you need to have an online trading platform and an active account with any forex broker.
Here is another example of how forex trading works.
Suppose you have 10,000 Malaysian Ringgit in your trading account. You enter a buy trade for MYR/USD. If the current market price of 1 USD is 4.05 MYR, then
you may buy 2469 USD. Selling USD back to MYR a month later might bring you a profit or loss depending upon whether your home currency strengthened or weakened against the US Dollar. Let’s have a quick look at the two possible scenarios;
01 USD = 4.50
Sell Trade: USD/MYR
2469 x 4.50 = 11110.50 MYR
(Note: you made a net profit of 1,110.50 MYR since you started with 10,000 MYR)
01 USD = 4.00
Sell Trade: USD/MYR
2469 x 4.00 = 9876 MYR
(Note: you made a net loss of 124 MYR since you started with 10,000 MYR)
You can see that if the US Dollar strengthens against your home currency, then buying back the Malaysian Ringgit will bring you profit, else it is better to keep holding your funds in USD unless the exchange rate for the USD increases.
Pros And Cons of Forex Trading
Given below is a highlight of some pros and cons associated with forex trading;
- Easily Accessible – Traders can access forex markets anytime from anywhere. All you need is to have a working internet connection and a supported PC or mobile phone to run a trading platform. You also need to sign up with a broker to open a live trading account. Please note retail forex brokers offer uninterrupted access to the forex market – five days a week.
- Simple Taxation – Unlike other financial markets, profits in forex trading are subject to simple tax calculations.
- Low Pricing – Costs associated with forex trading is lower as compared to other forms of trading. No capital investment is required to kick off your trading journey. You can pay a small amount of fee (spread/commission) for every trade you place in the forex market. However, you do need a trading capital.
- No Skill Required – Many copy trading platforms allow investors to profit from the forex market without any active involvement in trading. Traders can use both expert advisors as well as social trading platforms to make hassle-free earnings from forex trading.
- Leverage – Using leverage traders can take advantage of increased market exposure to maximize their returns. However, leverage also magnifies the risk of loss in case the market behaves unprecedentedly.
- Fast Returns – Being highly liquid, the forex market offers quick returns when compared to other investment opportunities, such as the real estate sector or the automobile industry.
- Easy Going – Forex trading is very easy. You can carry out the forex business along with your regular job. There are many set and forget trading strategies that allow traders to place trades and forget about them as the trading platform closes trades automatically at predefined profit or loss level.
- Risk is higher – Forex trading comes with high-risk exposure. Besides being highly liquid, the forex market also has high volatility that may sometimes cause losses beyond your expectations. Similarly, the risk for traders using leverage remains always higher as compared to those having no leveraged positions.
- Small Traders May Struggle – Institutional investors and banks dominate the forex market, leaving little chance for small-scale traders to benefit from the major market moves. Therefore, traders need to remain extra vigilant in high volatile market conditions.
- Complex Price Structure – There may be various factors involved in the price fluctuation of the forex market, including but not limited to socio-economic events that might not allow traders to precisely understand the information and draw a conclusive decision. A lot of traders depend upon technical indicators. If a technical indicator is wrong, you could well be in trouble.
How To Start Trading Forex in Malaysia
Forex trading is legal in Malaysia, so to kick off your trading journey all you need is a personal computer, laptop, or mobile device with a stable internet connection, a live trading account with any forex broker, and a trading platform.
Forex traders in Malaysia need to verify their identity as well as the residential address before making any investments. A scanned picture of passport or ID card or driving license is required to verify the identity while a copy of the bank statement or utility bill is needed for address verification. The process is known as Know Your Client (KYC) compliance that all brokers must follow to comply with money-laundering and anti-terror financing laws.
After the broker verifies your account, then you need to make a deposit. The minimum deposit is $50 at most of the forex brokers in Malaysia. Brokers offer multiple payment methods for funds transfers including but not limited to credit card, debit card, bank wire, skrill, neteller, webmoney etc.
If you are a beginner, then you should start with a demo account. I suggest using minimum leverage in the beginning. If you are not sure about anything at any stage, then contact the broker’s customer support which is usually available through email, phone, and livechat.
Forex Trading Communities, Forums, and Discussion Groups in Malaysia
Joining online discussion groups or trading forums to learn and share your trading experience with like-minded people can be an effective way to grow in your forex trading journey. You can sign up on multiple forex trading forums or join Facebook groups for brainstorming and learning new things about trading. Here I list some top forex trading forums and discussion groups you may like to visit.
#1 Forex Peace Army
Founded in 2005, the forexpeacearmy.com is a popular forex trading forum. The platform has two main sections, including beginners Bootcamp and companies discussion. Traders share different trading ideas, financial news, and trading knowledge under the beginners bootcamp category. Similarly, in companies discussion groups, people talk about good or bad experiences about different brokers. It is a good place to find an honest and legit broker in Malaysia.
#2 Facebook Forex Trading Group – Malaysia
With thousands of members, the forex trading club is a popular Facebook trading group active for the past four years. Not only Malaysian traders but traders from other regions can also join this public group. Sharing information with peers and making new connections with other professional traders help you increase your trading awareness.
Helping local traders to connect and exchange information about forex trading, MeetUp is yet another online discussion forum that you may consider. The group has several open threads where traders talk about different dimensions of forex trading. You can also participate in group discussions with your personal opinion on funds management services and the use of expert advisors.
Forex Infuencers to Follow in Malaysia
# 1 CF Lieu
CF Lieu is a financial advisor and certified professional based in Malaysia. With years of experience in hand, he teaches people how to take control of their financial affairs. Whether you are a beginner who is just looking to enter the forex world, or a senior citizen planning to save for your retirement, CF Lieu is the person you would certainly like to follow.
# 2 Round & Surges
With over 1K subscribers, Round & Surge is a popular youtube channel that you can follow for professional guidelines on stock trading in Malaysia. The channel features finance gurus who share their trading strategies with tips and tricks on different investment markets, making traders’ lives hassle-free. Besides the youtube channel, the group also runs a training center located in Petaling Jaya, Malaysia.
#3 Fred Tam
Launched in 2017, Fred Tam’s youtube channel has a membership of nearly 1.67K subscribers from all over the world, including Malaysia. Mr. Tam is a well-known public figure in Malaysia and has worked for years as a professional trader, researcher, and fund manager. According to him, his trading model is simple, efficient, and profitable. The channel features his trading ideas and strategies on forex and stock trading. You may also find various informative videos and interviews conducted with industry experts.
Is forex trading legal in Malaysia?
Yes, forex trading is legal in Malaysia.
What is the best time to trade forex in Malaysia?
The forex market remains open round the clock, except for weekends. So, you can trade anytime. However, it is best to trade in the hours when different trading sessions overlap each other. The overlap timing for different trading sessions in Malaysian Time Zone is as follows.
- US/London Overlap: 9:00 PM to 1:00 AM
- Sydney/Tokyo Overlap: 03:00 PM to 5:00 PM
- London/Tokyo Overlap: 04:00 PM to 5:00 PM
Is Forex Trading taxable in Malaysia?
If forex trading is your main income source then yes it is taxable in Malaysia. However, capital gains as well as swap-free Islamic accounts are exempt from taxes in Malaysia.
Can you make money trading Forex in Malaysia?
Yes, you can earn a reasonable amount of money with forex trading. However, you need to remain disciplined and should have a successful trading strategy.