We have listed these brokers after comparing their fees, Tier 1 regulations, platforms & more..
| Broker Name | Highlights | Typical Spread (EURUSD) | Minimum Deposit | Bonus & Promos | Learn More |
|---|---|---|---|---|---|
XM Forex |
Low spread & wide trading instruments |
Fees (EURUSD)
0.8 pips
with Ultra Low Micro Account |
Minimum Deposit
$5
|
Bonus Offers
15% Bonus up to $500
|
Visit XM Read XM Forex Review |
What are some of the key terms you should be familiar with? What should be your trading strategy? How do you know which broker to choose? What risks are you agreeing to while trading? In this guide, we will answer all such questions and more.
Forex market is financial market where the forex pairs or currency pairs like EURUSD are exchanged. US Dollar is the most traded currency in the world & it is exchanged for other currencies like Euro, CAD, AUD etc. Forex trading involves the speculation on the value of currency instruments i.e. you either buy or sell or exchanging currencies at pre-defined or current market exchange rates.
For example, currently, the value of the Malaysian Ringgit against the US Dollar is 0.24. This means that you can buy 0.24 USD with 1 Ringgit.
Retail Forex trading is not regulated in Malaysia yet, so it is best to avoid trading until it is legalized & regulated. You can refer to this guide for your resource & learn about it.
Barring a few restrictions on trading, you can trade with foreign brokers, but that is at your own risk.
A currency markets are mostly driven by interest rates. If a Central Bank has a higher exchange rate, then the traders would tend to hold on to that currency more than a currency with lower interest rates.
For example, if a Central Bank unexpected hikes interest rates to tackle inflation, then the value of its currency will rise against others.
But if a Central bank eases its policy & keeps their interest rates very low, then the market would tend to sell that currency for currencies that offer higher interest rates.
One such example if USDJPY, which ususally trades on the US yields. If the BoJ maintains their low yields, but the yields in the US are increasing, then the USDJPY will rise in value. You will notice this from the uptrend in USDJPY in 2022 when the Federal Reserve was on a hiking cycle.
Similarly, here is an example of a Central Bank hiking their interest rates & surprising the markets.
The expected hike was 25 bps, but the actual was 50 bps. Such actions cause high volatility in the forex markets.
There are other factors as will that move the forex markets, but we will discuss them more later.
Let's now take a look at some of the key terms you'll come across while trading currencies. You must understand these keywords, before you can trade forex. You will likely come across all these words on a regular basis when you start trading.
Here we go!
A currency pair is a quote of two currencies, where the value of the first currency is quoted against the value of the other. The first currency is called the base currency and the second one is called the quote currency.
Currency pairs are written by using the ISO codes of the currencies. An ISO code is a three-letter alphabetic code.
For example, the Euro-US Dollar is written as EURUSD or EUR-USD or EUR/USD. Here the value of a Euro is quoted against the value of a US Dollar.
EURUSD = 1.20 means that a Euro can buy 1.2 US Dollars or you need 1.2 US Dollars to buy a Euro.
All currency pairs that are traded the most and are based on the US Dollar are known as the major pairs. Some of the major pairs are EURUSD, USDJPY( Japanese Yen) and GBPUSD( Great Britain Pound). Apart from the major pairs, there are minor pairs( pairs that don't include the US Dollar) and exotic pairs( pairs that include the currencies of emerging economies).
Pip stands for Percentage in Point. It is the unit used to express the change in value between the price quote of a currency pair, in terms of the underlying currency.
For example, consider that the value of EURUSD increases from 1.1000 to 1.1001. This corresponds to an increase of 1 pip.
In some currency pairs like USD/JPY, the second decimal point is 1 pip. For example, if the USDJPY moves from 140.10 to 140.40, it has moved 30 pips. The exact value of the trade will depend, which we will explain more in sections below.
A pip is generally the last decimal place of a price quote. Like, US Dollar related pairs go up to 4 decimal places and so, 1 pip is equivalent to $0.0001.
Leverage is borrowing a certain amount of money to enter a trade. In the case of forex trading, the amount is usually borrowed from the brokers. Forex traders enjoy the benefit of being able to use higher leverage, unlike any other form of investment.
The upside of this is that the margin requirement or the amount of money you need to invest initially is really low compared to the capital requirement.
For example, some forex brokers offer up to 1:1000 leverage. This means you can exercise control over a sum of $10,000 by just investing $10 upfront.
But, leverage is a double-edged sword. If the trade doesn't go in your favour, then you'll lose just as much as you could have gained. Ideally, you should trade by calculating the risks involved and the potential losses shouldn't exceed 3% of your capital amount.
A forex broker will show you their quote on their platform. The quote has bid price & an ask price.
Bid price is the price at which you can buy a currency pair. For example: If the bid price for EUR/USD is 1.2121, then you can place a buy order at this price.
Similarly, the ask price is the price at which you can sell the currency pair.
The bid price of a currency pair is always lower than the ask price.
A spread is the difference in the bid and ask prices of an asset or security.
The spread of a currency pair depends on the forex pair. It's highest for exotic pairs like SEKZAR and lowest for the major pairs like GBPUSD or EURUSD for example. Spread is measured in pips.
As the value of a forex pair can change based on the market conditions, so can the value of its spread. Thus, spreads are of two types- Fixed spreads and Variable spreads.
Fixed spreads remain the same, irrespective of the market conditions. Fixed spreads are usually offered by brokers who act as "market makers". One advantage of fixed spreads is lower capital requirements. Also, since the spread is fixed, the prices remain predictable.
For example, AvaTrade Malaysia offers fixed spread trading account. Their spread is 0.9 pips for EUR/USD currency pair.
Variable spreads keep changing based on the market conditions. Variable spreads are mostly offered by non-dealing desk brokers. As the broker can adjust the ask prices based on the current situations, variable spreads eliminate the risks of requotes. Also, variable spreads promote transparent pricing.
Variable spreads are also called floating spreads. Forex brokers that charge variable spreads will mention their 'typical' or 'average' spreads on their website for different account types. For example, below is the screenshot from XM broker's website, where they mention their lowest spreads for every currency pair with the Ultra Low Trading Account
Similarly, all the forex brokers mention their lowest & typical spreads on their websites.
In the forex market, currency pairs are always traded in pre-set amounts - called lots.
Just like pips is the unit used to measure a change in the value of currency pairs, lots are used to measure the quantity of currencies being bought/ sold or exchanged.
Lots come in 4 sizes:
So, if you are placing a Buy order for 5 Mini Lots, it means that you are buying 50,000 Units of a currency pair.
The exact P&L in your trading account will depend on your lot size. You must understand the concept of lot size to manage your risk in forex trading.
Your position sizing is related to the number of lots which you are trading. This should depend on your account size & your risk.
For example, if you have $1000 in your trading account with your broker, you should only be trading number of lots suitable for your balance. Let's understand this with a real trade.
If you are using 1:10 leverage, then you can place trades of up to $10,000 with your account balance. This mean that if you are trading EUR/USD, you can buy or sell 1 Mini Lot (or 10,000 units).
For every 1 pip movement, the P&L will be $1. The average volatility of EUR/USD can be 70-100 pips in a day. If you are not using any stop loss, and the trade goes against you, then you would lose $70-100 in a day, which is equivalent of 10% of your account balance.
This brings us to the concept of risk in a single trade. You should adjust your 'Stop Loss' and your position size according to the risk. You must never risk more than 2% on a single trade. This means, if you are trading 1 Mini Lot, you should not have more than 20 pips Stop Loss.
Or, if your stop loss is of 50 pips, then you should adjust your position sizing to trade less number of lots, which would come out to be 4 Micro lots or 4000 units on this trade.
Being an emerging economy and having a growing trader base, countless foreign brokers offer their services to the residents of Malaysia. However, retail forex trading is still unregulated at large and as such, there is no broker regulated for retail forex trading in Malaysia.
It is strongly adviced that you should not trade forex through any foreign licensed CFD broker. If the local regulator licenses any forex broker in the future, then local retail traders can trade via that broker. But till then you should trade instruments that are allowed legally as per local laws.
The traders who are trading from Malaysia opt for foreign brokers at their own risk. They can get some safety from the fact that a forex broker they are trading with is regulated under multiple tier 1 and tier 2 global regulators like:
But this does not make a foreign licensed forex broker safe. Any retail trader who is trading forex being based in Malaysia carry a risk, as it is not allowed.
Below we will explain in general, how the forex broker A is lower risk than Broker B. Note that CFD trading carries risk, a broker being lower risk does not imply that CFD trading is not risky, it simply means that the broker has licenses with multiple regulations to operate in those jurisdictions legally.
Brokers can usually be differentiated from one another based on:
Islamic are the most beneficial for traders from Malaysia. Apart from that, most brokers offer at least two types of accounts- standard and premium.
Trading instruments include Forex, Cryptocurrencies, Indices, etc. Even the number of options of each instrument offered by different brokers are not the same like not all brokers offer the same number of forex pairs.
There are two types of execution methods based on how the traders specify the details of the trade at the time of placing an order.
Broker charges are generally of three types:
This can further be classified into two broad categories:
While choosing a broker, you should always go for a broker who supports deposits and withdrawals from local banks. This way you won't incur additional charges and you won't be limited to online-only payment methods.
If you are a new investor, it Is better to start off with a demo account. Demo accounts help you to get familiar with the trading platform. Demo accounts also simulate the market in real-time and hence, you can test the effectiveness of your trading strategy. Once you think you are ready for the market, you should start off with a small capital first. This will prevent you from incurring huge losses.
Being an emerging economy and having a growing trader base, countless foreign brokers offer their services to the residents of Malaysia. However, retail forex trading is still unregulated at large and as such, there is no broker regulated for retail forex trading in Malaysia.
You can opt for foreign brokers. But, you should make sure that the broker is regulated under multiple tier 1 and tier 2 global regulators like:
The first and the foremost step, before you start with trading, is choosing a broker. You should compare brokers considering the following points:
Take a look at the institutions under which the brokers are registered. Regulatory institutions are divided into three categories or "tiers":
Tier 1( Highly Trusted)
Like,
Tier 2( Moderately Trusted)
Like,
Tier 3( Low Trust)
In general, you should go for a broker regulated under at least a couple Tier-1/ Tier-2 institutions.
Deposit methods vary from broker to broker. Also, the time taken to reflect the deposits into your trading account differs. First, list the payment methods you are most comfortable with and also the payment methods you would like to have as options. Then, compare the brokers based on the list you've made.
As mentioned before, brokers offer a variety of options in trading instruments. Since you want to trade in forex, choose the currency pairs you want to invest in and then crosscheck the brokers based on your preferences.
Trading tools aid you in trading. Some of the most popular trading tools are:
However, do note that not all brokers offer these tools for free. Sometimes the charges for using these tools are direct. Otherwise, the features may be reserved for premium accounts, where the charges are written off as maintenance charges or annual fees.
As we have previously discussed, brokers offer different types of accounts to their clients. This usually includes standard and premium accounts.
Apart from this, you can also opt for brokers who offer ECN accounts. ECN stands for Electronic Communications Network and ECN accounts are especially beneficial for short-term traders. This is because commissions are charged based on the number of transactions processed instead of the volumes of the trades. Also, ECN accounts offer more liquidity and tighter spreads.
Lastly, you can also opt for Islamic accounts. Islamic accounts follow the principles of the Sharia law and offer interest-free trading with no rollovers or overnight fee.
The most popular trading platforms are MT4( MetaTrader 4) and MT5(MetaTrader 5). All the different trading software applications offered by the brokers are based on one of these two platforms.
Also, if you want to use your smartphone to trade, you should look for brokers who offer mobile trading apps.
Do note that the software applications for trading are different for Windows, Mac OS, Android and iOS. So, it is better to check if the brokers offer trading applications compatible with your device(s).
We have already discussed how different brokers charge their clients in the previous section. So let's now take a look at the two most important additional charges that you might incur while trading:
Also called rollover fees, overnight charges denote the interest charged on a position that remains open overnight. It is generally calculated for positions that remain open after 5 p.m. EST.
Inactivity fees are charged on accounts that have remained idle for a long time. An idle account is one that has recorded no transactions over a set period of time. The duration after which brokers charge inactivity fees is usually 6 months.
Inactivity fees are a liability for long-term/ buy-and-hold traders. So, you must keep this in mind while comparing brokers and also, while maintaining a trading account.
Once you're done with comparing the brokers of your choice and choosing one from the list, all you need to do now is open a trading account. The basic steps involved in opening an account are:
As a new investor, start with a demo account and also, keep the amount of leverage you use in check.
Forex trading, like other forms of investments, also comes with certain risks involved. Just like any other investment, the risks increase based directly on the return potential.
Three of the most common forms of risks involved in forex trading are:
As we have previously discussed, with a higher amount of leverage the risk involved is higher. So you should always open a trade based on the amount of risk involved i.e. the amount of losses you can incur, and not on the potential gains from the trade.
For example, if you are trading CFDs on EUR/USD using 1:100, with 100 USD in your account balance, then you can trade upto 10,000 units or 1 mini lot. A 1 pip move with mini lot is 1 USD (not in all cases).
Let's say that you were trading 1 mini lot, but the trade goes against you by just 30 pips, your loss will be 30 USD or 30% of your account equity.
Most of the offshore CFD brokers offer as high as 1:2000 leverage on currencies. If any trader uses this, they are at risk of losing their equity very quickly, often on a very few traders.
You can see in the example below from a forex broker that they have very high leverage with their accounts. Some forex brokers have an option for traders to limit/set their own leverage for their trading account, but this does not make it totally low risk unless you use 1:1 leverage.
Exchange rate risks are caused by fluctuations in the value of your local currency versus other foreign currencies. Exchange rate risks are unavoidable but one way to mitigate the same is through diversification.
Diversification is the act of investing in a variety of unrelated/weakly-related assets or securities. The risks involved and return potential of each investment varies and the total risk-to-reward ratio of your assets can be tuned to your liking.
The value of a country's currency fluctuates when it goes through any economic, social or political crises of a local, national or global scale. This causes changes in the value of the related forex pairs and, consequently, the market becomes volatile.
During times of high volatility, traders get exposed to liquidity risks i.e. the inability to exit a trade as they might incur huge losses.
The best way to reduce the risks involved in your investments is through risk management.
Risk Management not only focuses on reducing the amount of risks involved but also maximising the gains from your portfolio. The basic steps involved in risk management are:
Lastly, the success of any operation depends on devising a plan. In the case of forex trading, you must follow a trading strategy.
Forex Trading Strategies are broadly divided in Fundamentals & Technicals.
Here in this chapter we will briefly explain each of these strategies.
While devising your forex trading strategy, it is really important to focus on two key points:
Fundamental analysis is based on monitoring the social, economic & political factors that have caused market developments in the past and likely to do so in the future.
Even the most subtle developments in a country can cause a change in its economy and, thus, in the value of its currency. The more stable a country's economy is, the more foreign investors are likely to invest in its currency.
The most important factors you should keep a track of are:
Technical analysis involves the study of graphs/ charts and visualisation of historical data of price movements. It also involves recognizing patterns and shapes in the graphs and deducing conclusive information from the same.
Some of the types of charts you should track are:
Technical analysis also involves the use of certain financial indicators, such as:
Lastly, technical analysis helps you form a trading strategy. Some of the most popular strategies, related to technical analysis, are:
In scalping, traders go for small profits on a daily basis. The returns per trade are minimal, as the time for which a trader holds his position usually ranges from 1 minute to 1 hour.
Scalping opens up the most number of trading opportunities. But, it requires the highest level of involvement and is mostly suited for full-time traders.
In day trading, all positions are closed before the end of the day. While this opens up a substantial number of trading opportunities, day trading also demands a high level of involvement during trading hours( though, less than in the case of scalping).
Here, traders hold the assets for up to a few days in order to take advantage of price fluctuations.
Swing trading requires lesser involvement than day trading but traders are also exposed to overnight and weekend market risks.
Position trading involves holding a position for over a long period of time- ranging from a few months to a few years.
While position trading involves minimal involvement and a high reward-to-risk ratio, it also comes with few trading opportunities.
Let's take an example of a trader who uses Technical analysis to trade.
One of the most common strategies is trend following. A trend follower would commonly use moving averages to analyse a trend. You can either trade short term trend or long term.
You can use 9, 21 & 50 days moving averages to spot the short term trend. And use the 200 day moving average to spot the long-term trend.
If the price is above its 200 day moving average, then it is commonly in an uptrend. If it is below it, then it is in a downtrend.
When the price is trend down, you should look for short trades. When it is trending up, then you should look for long trades.
The above screenshot is of GBPUSD currency pair. This is a long-term chart (bi-weekly). As you can see the price is right now in an Up-Trend, and trading, holding above it's 3-month & 6-month moving averages. This means that the traders should try to look for long trades.
Another factor to consider is the fundamentals of the British Pound against the US Dollar.
The currencies mostly trade on relative exchange rates or Risk On & Risk Off environment.
If the inflation in the UK is higher than in the US, then the BoE would be expected to increase their interest rates more.
You can check the market's expectations of the future interest rates. If the market expects BoE to be more hawkish than the US FED, and even hold the interest rates higher for a longer period, then the GBP will generally trade higher than the US Dollar.
In this sitution, if both the technicals, and the fundamental story matches, then you can go long on GBPUSD.
Forex trading sure can be risky, but that's only when you act impulsively. This is why you should dedicate enough time in educating and training yourself before you move on to trading in considerable lots.
Also, while trading and also while choosing a broker, you must read the related documents and conditions carefully. Make sure you trade in compliance with the laws of your country. In case of any doubts, you can consult an expert or just look it up on Google. There are countless pages online on every aspect of trading. There are also dedicated blogs and sites which can help you connect with professional traders.