What Is Forex Trading?
The process of making profits through exchange of currencies in a decentralized market is called forex trading. According to the Bank of International Settlements (BIS), the forex market is one of the world’s most liquid markets with a daily trading volume exceeding 6 Trillion U.S. Dollars. Forex trading in the Philippines is not very common as compared to the stock and bond markets. Forex trading is, however, an emerging way of making money in the Philippines.
How Does it Work?
Despite being a decentralized entity, the forex market still has some common rules. All currencies are traded in pairs i-e PHP/USD, GBPUSD, JPY/CHF, etc. Similarly, a currency pair always has a base currency appearing before the quote currency.
A three-digit code used for currency denominations includes the first two letters for country representation and the third letter for symbolic reference. The market price of a pair reflects the amount of quote currency needed to settle the base currency.
The fluctuating prices of currencies due to various geopolitical factors create profit-making opportunities for speculators. Traders buy a currency pair when they expect a rise in the price and vice versa.
Let’s try to simplify the concept of forex trading with an example;
Say you wish to trade 100,000 Philippine Peso (PHP) against the U.S. Dollars (USD). If your broker quotes the rate for PHP/USD as 0.021, then you can consider two options listed below;
1) Enter a buy trade
If PHP increases from 0.021 to 0.030, then you might earn a profit of 900 PHP i-e. 0.009 x 100,000 = 900 PHP.
2) Enter a sell trade
If PHP loses worth from 0.021 to 0.011, then you could make a profit of 1100 PHP i-e. 0.010 x 100,000 = 1100 PHP.
Pros And Cons of Forex Trading
Despite being extremely profitable, forex trading can also sometimes result in loss of all or part of your investments. Therefore, it is wise to consider pros and cons of forex trading before beginning your trading journey;
- Volatility – While volatility can be risky, it also has a potential to generate some good returns if traded skillfully with proper money management rules.
- Leverage – Leverage allows traders to enjoy increased market exposure with limited capital investment. Hence, your risk is limited but profit potential is more than your actual investments.
- Diverse Portfolio – With a wide range of tradable currency pairs such as majors, minors, and exotics, forex trading offers a diversification of your trading portfolio.
- Liquidity – The forex market is known for its high liquidity. Traders can have their orders fulfilled faster as compared to any other investment markets.
- Decentralized Market – Because the forex market is decentralized, the chances of price manipulation are minimal. On the other hand, stock and equity markets are more prone to manipulation by key players holding insider information.
- Affordable – Since there are no capital investments required in forex trading such as infrastructure or renovation expenses, therefore it is affordable for everyone. High volume traders can inject massive capital investments, while low scale traders can with deposits as low as $50.
- Demo accounts – Without risking actual money, traders can use virtually funded demo accounts to practice different trading strategies under live market conditions. Traders might not find such flexibility in any other investment market.
- Quick to start – Forex trading does not include any formalities. Traders can start forex trading right away after signing up with a broker and depositing funds into a trading account.
- Money Stealers – The forex market is full of fake trading companies and money stealers, making it hard for newbie traders to find an honest forex company whether it be a broker, fund management firm or signals provider.
- Legal Protection Issues – Being a decentralized entity, the forex market makes it difficult for traders to seek legal protection against brokers breaching the code of conduct.
- Social Trading Limitations – Without requiring any previous trading exposure, social trading can help traders to start making money right from the beginning of their forex journey. However, it can also result in losses if you end up selecting a wrong trader.
How To Start Trading Forex in Philippines
In addition to signing up with a broker, a trading platform and funded account are the main ingredients to kick start your forex journey in the Philippines.
Forex trading in the Philippines is not completely legal. A circular was recently issued by the Securities and Exchange Commission (SEC) of Philippines that restricts forex trading activities countrywide. It has become very challenging to find a local forex broker in the Philippines. However, you can still find some good international forex brokers accepting clients from the Philippines.
After signing up with a broker, traders also need to complete the KYC process. It’s an identity verification step that brokers request their clients to complete before they can start trading forex. The KYC parameters enable anti-money laundering and law-enforcement agencies to stop financial fraud.
Following documents can be used to fulfill the KYC requirements;
1) National ID card/passport/driving license
2) Bank Statement/Utility Bill (for address verification)
After the KYC verification, you can deposit funds into your account using any suitable payment method. Most common payment methods include debit/credit cards, bank wire, e-wallets and crypto payments.
Forex Trading Communities, Forums, and Discussion Groups in Philippines
Social interaction with other trading professionals can be a great help to have increased market understanding. Given below are some forex communities that help Filipino traders to learn the trading odds.
#1 Forex Trading Philippines
Forex Trading Philippines is an online community for traders based in the Philippines. Managed by professional traders and forex mentors, the community offers educational resources to help traders learn basic and advanced-level trading skills. Besides signing up for one-on-one training sessions, traders can also join the group for monthly webinar training sessions.
#2 Grit PH
Focusing on a wide range of investment opportunities, Grit PH offers informational content in forex, stocks, bonds, and cryptocurrencies domain. The website has recently launched a youtube channel where it teaches citizens of the Philippines how to earn a steady income with various sources, including forex trading and other investment markets.
#3 Pinoy Forex Forum
Pinoy Forex Forum is an active community of Phillipino forex traders on Twitter. In addition to sharing forex information, the group features posts on technical and fundamental analysis.
Forex Influencers to Follow in Philippines
#1 Jonathan Lou
Jonathan Lou is a head coach & co-founder of the Philippine Association of Forex Traders Inc. He provides forex training tips to thousands of traders from all across the Philippines. In 2019, Lou received the best trading Guru award for his remarkable efforts in the forex industry.
# 2 Bibiano Suarez
Bibiano Suarez is a professional forex trader and investment specialist from the Philippines. Suarez guides traders on how to trade forex using effective trading strategies. He also helps people learn the art of technical analysis through his youtube channel.
Frequently Asked Questions (FAQs)
Is forex trading legal in the Philippines?
No, forex trading is not legal in the Philippines. The Securities and Exchange Commission of the Philippines has banned forex trading activities in the country. Traders in the Philippines are however free to perform forex trading with overseas brokers.
What is the best time to trade forex in the Philippines?
The best time to trade forex in the Philippines is when the forex market has two trading sessions opened simultaneously. Generally, it is called the overlap timings. Given below is the time when different trading sessions overlap according to the Philippine Standard time.
- US/London Overlap: 2:00 PM to 6:00 PM
- Sydney/Tokyo Overlap: 08:00 AM to 10:00 AM
- London/Tokyo Overlap: 09:00 AM to 10:00 AM
Is forex trading taxable in the Philippines?
Yes, forex trading income is taxable in the Philippines. Only non-residents may receive an exemption of tax payable on forex earnings.
Can you make money trading forex in the Philippines?
Yes, you can make steady profits with forex trading if you trade with effective trading strategies and risk management rules.