Basic Forex Trading Terminologies

Forex trading terms are quite many. However, you do not have to learn all at once. Here are some basic terms you should know:

1) Pips: A pip shows the unit change in the value between two currencies. A pip measures this change whether there is an increase or decrease in value. Here is an example to help you understand.

Let us say GBP/USD moves from 1.3361 to 1.3362. This means that the dollar rose in value by 0.0001, which equals one pip. Conversely, if GBPUSD moves from 1.3361 to 1.3359, then the dollar fell in value by 0.0002, which equals two pips. Pips are key to knowing how much you stand to gain or lose in a trade.

2) Currency Pairs: As stated earlier, currencies are traded in pairs on the forex market. You are buying a currency and selling another simultaneously. This is why currencies are paired against each other. A currency pair typically contains six letters. Let us work through this.

• GBP is a single currency that represents the Great Britain Pound.
• USD is a single currency that represents the U.S. Dollar.
• When paired together you have GBP/USD. This is a currency pair.
• In GBP/USD currency pair, GBP is the base currency while USD is the quote currency
• Buying the GBP/USD pair means buying GBP in return of USD
• Selling GBP/USD means selling GBP in return for USD
• On a brokers’ platform, currency pairs are quoted as – GBPUSD.

A currency pair could be major, minor, or exotic, depending on its makeup.

3) Leverage: Leverage is your broker borrowing your money to trade. If you do not have enough money to open a certain position size, your broker takes a down payment from your deposit and lends you the rest. This down payment is known as the margin. When you close the position, the margin is returned to your deposit. Leverage is usually expressed in ratios.

Here is an example, Assuming you want to open a $5000 position in the market. Your broker can take a margin of $500 from your deposit. Your leverage, in this case, is 10:1 ($5000/$500 =10/1). This is the power of leverage. You get to use a small volume of money to control a huge volume of money.

4) Bid and Ask Prices: Your broker gives you these two prices for a currency pair. The bid price is the highest price your broker can buy a currency from you. The ask price is the lowest price your broker can sell a currency to you. The ask price is usually higher than the bid price.

5) Spread: The spread is the difference between the speed and the ask price. The spread is also measured in pips.

6) Lot Sizes: Lot size tells you the specific amount of a currency you want to buy or sell. Just like you go to the market to buy things with specific numbers, it is with forex trading. There are three types of lot sizes. The lot size you trade with determines the unit of a currency you are buying or selling.

Market Trading Terms

Some terminologies are based on market activities and traders must acknowledge these to understand price movements in the forex market.

1. Bull Market

Bullish trend or bullish market is a commonly used term in financial markets to denote appreciation in the price of the asset. For example, a continuous rise in prices of a commodity or stock for a prolonged period will be called a bullish trend.

In a forex pair, a bullish trend can be due to appreciation as well as the depreciation of one currency with respect to other. For example, a bullish trend in EUR/USD currency pair represents an appreciation of EUR and/or depreciation of USD.

2. Bear Market

A bearish trend or bearish market is exactly the opposite of a bullish trend. Continuous depreciation in the price of an asset is commonly denoted as a bearish trend.

In the forex market, appreciation of quote currency and/or depreciation of base currency can be called a bearish trend on a currency pair.

3. GDP

GDP or Gross Domestic Product is the total value of all the goods and services produced in a country in a particular time period. It is a popular indicator that represents the overall health of a nation’s economy.

Growth in GDP can be compared with other nations to predict the increase or decrease in the price of a currency pair. For example, in a hypothetical currency pair ABC/XYZ, the GDP of the country with ABC currency increases more than the GDP of XYZ nation. This means ABC is growing faster than XYZ and the price of ABC in terms of XYZ is very likely to increase.

4. Inflation

Inflation means a rise in prices in a nation over a time period. There are multiple factors in an economy that can increase or reduce inflation.

Each country has different inflation rates at a particular time interval. One of the primary ways in which inflation is controlled is through the interest rate which is controlled by the Central Bank of the country. This interest rate can be increased to reduce money supply in the market which reduces inflation. However, higher interest rates may hamper GDP growth in an economy which is why Central Banks only use this tool very sparingly.

Inflation rates of two currencies involved in a currency pair can be compared to predict the price movement of a currency pair. The country with a higher rate of inflation will lose its value against the one that has a lower inflation rate.

5. Interest Rates

The interest rate of a country that is also known as the repo rate is the basic rate at which the central bank will provide loans in a particular nation to commercial banks. Interest rates also depict the rate at which investors can earn through fixed deposits in the country.

Interest rates are decided by the central bank or the monetary authority of a nation. Interest rates can be comprehended to predict the price movements in a currency pair.

Trading without strategy is like sailing without a compass. The sailor has no idea about the wind speed or the direction. That’s why the practice of forex analysis plays a vital role in currency trading. You look at the changes in the values of currency pairs and the forces that are influencing those price movements.

Traders use both fundamental and technical analysis for creating a profitable strategy. Many expert traders combine both techniques to take a hybrid approach. In short, the knowledge of technical analysis will tell you when (to buy or sell) and fundamental analysis tells you why (the price movements). Both are indispensable weapons for a successful forex trader.

Let’s deconstruct both methods one by one.

Fundamental Analysis

What economic factors will impact the demand and supply of a currency? Welcome to Macroeconomics 101, the law of demand and supply. If the demand for a currency is increasing, the trader may assume the prices will rise. On the other hand, a demand reduction may be an indication of an eventual fall.

However, it’s not that simple! There are many factors such as economic health, political stability, global events, and others that influence the expansion and contraction of a particular currency. For instance, the US Sub-Prime Lending Crisis in 2008 caused a massive breakdown of financial systems worldwide.

The fundamental analysis generally involves the following economic indicators:

1. Economy:

In addition to global economic events, the localized changes in a national economy can also influence the currency prices of that country. For instance, the increased commodity prices globally can strengthen Australian dollars.

2. Political Changes:

Although government changes are not a frequent affair, currency prices can be affected during a transition period. Developed countries have relatively stable regimes in comparison to developing countries. Political instability is the main reason why the currencies of many African countries are so unpredictable.

3. Monetary and Fiscal Policy:

Central banks use monetary policy as an effective tool to control the demand and supply of a currency. They can reduce the interest rate in an economic slowdown and can increase to curb the inflation caused by economic growth. The fiscal policy entails taxation and government spending. Higher taxes can drive slower credit and economic development. Both government policies can have a significant impact on the national currency.

4. Activities of Major Participants:

Main participants such as banks, financial institutions, or hedge funds may buy or sell a specific currency to up or down the prices. You will be in much better positions if you have an idea about the main speculators of the forex market.

5. Economic data and reports:

Main participants such as banks, financial institutions, or hedge funds may buy or World governments publish statistical data and reports that reveal the economic health and performance over a period. Many financial reports like employment data, inflation rate, GDP, and foreign exchange reserve can indicate regional economic conditions, which can dramatically impact the local currency. A forex dealer can use an economic calendar to avoid unwanted surprises from the release of new data.

Technical Analysis

Charts and graphs are the primary tools of technical analysis. Charts help traders identify historical performance, ongoing trends, and price movements and calculate risk to maximize gains from currency trading.

Understanding different charting formats such as line, bar chart, and candlestick is essential to develop a solid trading strategy for beginners. The following are important terminologies associated with technical analysis.

1. Bar chart:

It is the most basic charting which helps users select a currency and its performance for a fixed period. The bar chart shows the highest and lowest currency price points and average performance over the period chosen.

2. Candlestick:

It also displays the same information: open, low, high, and close. However, the representation of data is very different from the bar chart. It becomes easier for users to see the highest and lowest peaks of the currency movements with thin vertical lines.

3. Price Trends:

Trend is a term used in technical analysis of capital markets that depicts the direction of the price. Generally, the price of the underlying instrument moves in a particular direction until a trend reversal is witnessed. The tops and bottoms of the charts can be analysed to identify the price trend at a given time.

Trendlines and trend reversal are very important components of technical analysis. A higher-high price action followed by a higher low represents an uptrend (bullish) while a lower low and lower high depict a downtrend in price movement.

4. Support and Resistance

Support and resistance are the prices at which the trends are likely to reverse or stop moving further in that direction. There can be multiple support and resistance levels for a single financial instrument.

Support is the lower limit at which the price trend is likely to reverse or stop moving further below. Resistance is the upper limit on the price trend. Whenever a resistance or support level is broken, the price moves significantly. These limits are created due to trend reversals and stagnancy of prices at the price that same particular level. A support or resistance level gets stronger every time it resists the price movement.

5. Moving Average

As the name suggests, the moving average is an important indicator that depicts the average price movement in a given time. A moving average indicator creates a series of averages of different subsets of the full data sets of prices in a particular time interval. Current prices below the moving average depict a buying opportunity while the prices above the moving average may benefit the sellers.

6. Fibonacci Retracement

Fibonacci retracement levels are based on the Fibonacci sequence and are used to identify potential support and resistance levels. Traders use these levels to determine potential price retracement areas during a trend.

7. Bollinger Bands

Bollinger Bands consist of a moving average (typically 20-day SMA) and two standard deviations above and below the moving average. They help traders identify periods of high or low volatility and potential price breakouts.

8. Candlestick Patterns

Candlestick charts display price data in a visual format using candlestick patterns. Traders analyze patterns such as doji, engulfing patterns, and hammers to identify potential trend reversals or continuation.

9. Volume Analysis

Volume analysis examines trading volume accompanying price movements. It helps traders understand the strength or weakness of a price trend and identify potential reversals or breakouts.

10. Chart Patterns

Chart patterns, such as head and shoulders, double tops, and triangles, are formed by price movements and can indicate potential trend reversals or continuations.

There are hundreds of strategies that are used in the technical analysis of financial instruments. Technical analysis works well on instruments with high liquidity like the forex market.

Experienced traders often use technical analysis in combination with fundamental analysis to understand why the value of a currency rises or falls for the selected period. For example, if the fundamentals indicate that the US Dollar will strengthen against the Euro due to policy divergence, and the technical analysis also indicates the same, then it is much more likely that your strategy may be successful as compared to incomplete research.

You can use simple mathematical tools such as moving averages, trend lines, and others for technical analysis. You can learn about more advanced concepts like Elliott Wave Theory, Fibonacci Studies, and Pivot Points as you progress.

Online Forex Trading Platforms in Malaysia

Forex trading is legal in Malaysia. Only institutional traders get to trade forex through local brokers. Since the framework for electronic trading came into effect in November of 2019, institutional investors have been able to trade forex via approved platforms like Bloomberg and Refinitiv. The latter’s Malaysian office is located in Kuala Lumpur according to their website.

Online forex trading is not available to retail investors locally. If you are a retail trader, your only options are foreign brokers. This is where online trading becomes risky.

There are foreign brokers who accept traders from Malaysia. However, this does not mean you can register with any broker.

You should trade with regulated brokers only. If you choose an unregulated broker, you can fall victim to fraudulent business practices. It is important that tier-1 and tier-2 regulators like the FCA (UK), ASIC (Australia), CySEC (Cyprus), and FSCA (South Africa) regulate your broker.

These brokers also offer different accounts with varying instruments, execution speed, and fee. Since Islam forbids earning money via interest, any broker you choose must also offer an Islamic account. Islamic accounts do not incur rollover or swap charges for holding a trading position overnight.

Many brokers offer Islamic or swap free account which does not incur rollover charges. These charges are revenue for the broker. If it is not charged then traders might need to pay additional commission or increased spread. Clients must inquire the broker about the consequences of choosing Islamic account before choosing a broker in Malaysia.

You also do not need much money to begin trading at a retail level. Some brokers allow a minimum deposit of $5 to open a trading account. This allows you to open an account on a budget.

There are many tier-1 regulated brokers accepting Malaysian clients. These brokers allow you to deposit through local banks and offer swap-free Islamic trading accounts. Such brokers include AvaTrade, FXTM, XM Trading, Tickmill, OctaFX, and HotForex.

(Please note that the brokers listed above are not the only ones accepting Malaysian clients).

XM Trading and HotForex allow a minimum deposit of $5. FXTM’s minimum deposit is $10 while OctaFX minimum deposit is 25$ Tickmill, and AvaTrade require a minimum deposit of $100. Another important thing to know about your broker is their fees. These fees are charged based on the account type you choose to open with them. You should choose an account that matches your risk appetite and your budget.

How can you Trade Forex Online in Malaysia?

The first step to trading forex online is to open an account with a broker. Here are the basics of doing this.
1) Compare forex brokers: Brokers are not the same. Even if you have a number of brokers that offer an Islamic account, you still have to do your research. Research and compare your brokers along these lines.

• Regulation: The issue of regulation cannot be overemphasized. Your broker must be regulated with tier-1 or tier-2 regulatory authorities. The FCA, ASIC, CySEC, and FSCA are trustworthy regulators.




• Deposit methods: Any broker you choose must make a deposit of funds easy. You should be able to deposit in your local currency.



• Instruments: An instrument simply means a tradeable asset. Your broker should offer you a range of instruments. Currency pairs, commodities, metals, and CFDs are instruments you should look out for on your broker’s platform.



• Account types: The type of account you open determines the instruments you can trade, the fees you are charged, and the execution of your trade. Browse through the different accounts your broker offers. You get acquainted with the trading conditions in those accounts when you do this.

You can find all you need to know about brokers on their website. Do your due diligence before selecting a broker.

2) Register: After choosing a broker, the next step is to register with them and pick an account type that pleases you.

3) KYC Documentation: Your broker will require two documents to verify your identity. You will be required to submit an ID document and a proof of address document. Once these documents are verified, you can proceed to the next step.
4) Deposit your funds: After account verification, you need to deposit or add funds to your account.
5) Download Trading Platform: Now you need to download your broker’s trading platform and begin your trading journey.

New traders are advised to demo trade for some time. This helps you back-test your strategy and build confidence.

Steps to Open a Forex Trading Account in Malaysia

The account opening process at every regulated broker is nearly similar. However, the process and time required to open the live account can vary from broker to broker. Following are the steps to open a live trading account in Malaysia.

Step 1: Select a Broker

Traders must check and compare every aspect of the broker and choose the most suitable broker with regulations, low fees, availability of desired instruments, helpful customer support service, convenient deposit and withdrawals, and a user-friendly trading platform.

Step 2: Visit their Website or Download the App

After choosing the broker, you need to visit their official website or download the application to open the account.

Step 3: Enter Basic Details

The first signup process involves providing basic details like name, phone number, email, and country of residence. Some brokers may ask for a few more details.

Step 4: Select Account Type

Most forex and CFD brokers offer more than one account type with different pricing structures, trading platforms, or trading conditions. Traders must choose the most suitable account type while opening their accounts.

Step 5: Document Verification

After configuring the account and answering a few basic questions related to forex trading, traders are required to verify their documents by uploading soft copies. Brokers will ask for name and address proof which can be done with a passport, national identification document, etc. Each broker can take different times to verify the document ranging from 2 hours to 24 hours on business days.

Step 6: Deposit Funds

Once the account has been verified, clients can deposit funds through the accepted methods from the website or application of the broker. It is important to check the associated fees and time required to process the transaction.

Step 7: Download the Trading Platform and Start Trading

Once the deposits are visible in the account equity, you can open trading positions on available instruments through the trading platform. The trading platform can be downloaded on mobile and desktop devices and can also be accessed through the web.

Examples of Forex Trading with Leverage

Example 1) Assume you have $4000 in your account with a 50:1 leverage. This means you can trade up to $200,000 in the market.

You placed a trade order to buy a standard lot of EURUSD at 1.2800. Without leverage, you will need $128,000 to buy 100,000 units of EUR. However, the leverage of 1:50 only requires you to have a marginal amount of 1/50 or 2% of this, i.e $2560 in your account.

On this trade you expect the EUR to rise against the USD. A pip in this trade is worth $10. It must be noted that we have ignored spread in this example which means the bid price will be the same as the ask price.

You also set your take profit at 100 pips from 1.2800, which is 1.2900, and a stop loss of 50pips, which is 1.2750. If this trade goes your way, your 100 pips profit gives a $1000 profit (100pips x $10). If you are wrong, you lose $500 (50 pips x $10).

If you took this trade without any leverage, you could only buy $4000 worth of EUR units (3125 or 0.03 lot at the rate of 1.28). A movement of 1 pip would have moved your profits/loss by $0.03. 100 pips profit would be $3 profit.

Example 2) Assume you have a $5000 account with 50:1 leverage. You chose to sell a standard lot of GBPUSD at 1.3900. This means you are speculating a fall of the GBP against the USD. For this, you will need to have (1.3900 x 100,000 / 50) = $2780 in your account.

You intend to bag 300 pips here, so you set your stop loss a 100 pips from your entry at 1.4000. Your trade was going well until a fundamental event triggered your stop loss. Since a pip in this trade is valued at $10. Your loss will be a whopping $1000 (100 pips x $10). You just lost 20% of your account in a single trade.

Now let’s move to a hypothetical situation where you took this trade without leverage. You’d have purchased 0.03 standard lot of GBPUSD. A pip will be worth 3 cents this time. Your 100-pip loss would have been a paltry $3. Leveraging this trade gave you much higher loss.

Example 3) Now let’s take another example of a loss trade with leverage of 1:100 and spread of 2 pips. For easier understanding, the spread wasn’t considered in the above examples as the bid and ask prices were the same.

Suppose EUR/USD is currently trading at 1.2800/1.2802. This means that 1 unit of EUR will be bought at 1.2082 while the same will be sold at 1.2800. Suppose, you opened a long position with the standard lot hoping for a price increase at 1.2802. The ask price (higher) will be applicable in case of opening a long position.

With the leverage ratio of 1:100, you will need to have a minimum $1280.2 in your account to open a position of 1 standard lot. With $1280.2 in your account you are buying 100,000 units of EUR.

After a few minutes, the price goes down by 20 pips to 1.2780/1.2782. Now if you wish to close this position the bid price (lower) will be applicable to close the trade. You bought EUR in return for USD and now you need to sell the EUR back to receive USD and close the trade.

The price for a standard lot of EUR/USD moved down by 20 pips but there was also a spread of 2 pips. Hence, the overall loss will be 22 pips. The loss for 1 pip is 10$ on a trade of a standard lot so in this case, the overall loss will be $220.

This is why it is popularly said that leverage is a double-edged sword. It can allow traders to open bigger positions with smaller deposit amounts. Hence, profits, as well as loss amount, will increase with an increase in the leverage ratio.

You need only three things to trade forex:

• A good PC or mobile phone.
• A stable internet connection.
• A trading platform. It could be web, mobile or integrated.

1) High Leverage: Leverage is beneficial in that it can magnify profits but that is not all. Leverage also magnifies your losses. This is why top brokers like ASIC, CySEC, and FCA put a leverage cap on their brokers. This was done to curb excessive losses being incurred by traders.

Brokers regulated by the FSCA do not have these leverage regulations in place. So if you find yourself trading with a broker without a leverage cap, exercise self-control not to over-leverage your account.

2) High Volatility: Volatility is how quickly prices can change in a market. The forex market is liquid with a lot of traders in it. This is why drastic price change is not frequent. However, political and economic issues affect the market. These issues make the market extremely volatile. Prices move like they are on steroids. As a trader, you have to be aware of key economic events and political issues, to reduce the risk of volatility.

3) Unpredictable market movement: This is a major risk in forex trading. A trader can speculate on the future direction of the market. It is called an educated guess. The truth, however, is that no trader is 100% sure about his speculation. The market can always move against your speculation. Money and risk management practices protect you against this risk.

4) Scams: There are different scams in forex trading. From forex robot scams to the presence of unregulated brokers. There is no shortage of swindlers out there. Their goal is to get your hard-earned money. Here are the things you see in a forex scam.

• Unrealistic profits within a short time: If any trading offer stirs up greed in you with unrealistic rewards, it is probably a fraud.
• Risk-free trading. Forex trading, like any investment, carries its own risk. Any forex opportunity with zero risk is likely a scam.
• Exciting promos: When a broker keeps rolling out promos upon promos. Avoid investing with such a broker. Especially when a promo is better than the one that precedes it.

To protect yourself from scams, trade with tier-1 or tier-2 regulated brokers. ASIC, for example, does not allow its brokers to use promotions to attract traders.

There are multiple risk elements in the forex market. Choosing the right broker, taking informed decisions, technical and fundamental analysis, and other precautionary measures will reduce the risk factor. However, risk in the forex market can be mitigated but cannot be removed completely.

Leveraged forex trading involves significant financial risk. Forex trading is easily accessible for retail traders. More than 70% of forex traders face losses. It is always advisable to use the demo account and trade with virtual currencies before trading with real money. This will also allow traders to know whether forex trading is suitable for them or not.

To mitigate these risks, forex traders should:

• Educate themselves about the forex market and trading strategies.
• Use risk management techniques, such as setting stop-loss orders and position sizing.
• Avoid excessive leverage and only trade with capital that they can afford to lose.
• Stay updated on economic events and news that may impact the forex market.
• Remain disciplined and avoid making emotional decisions based on short-term market movements.

Risk management techniques in forex trading

Position Size: Determine trade size based on account balance and risk tolerance (1-2% per trade).

Stop-Loss: Set stop-loss orders to limit losses if the market moves against you.

Take-Profit: Use take-profit orders to secure gains at a predefined level.

Risk-Reward Ratio: Aim for favorable risk-reward ratios (1:2 or better).

Diversification: Spread risk by trading different assets, not all in one.

Control Leverage: Use leverage carefully to align with risk tolerance.

Trading Plan: Develop a clear plan with entry/exit rules and risk limits.

Emotions: Manage emotions to avoid impulsive decisions.

Stay Informed: Be aware of market events that could impact trades.

Monitor Trades: Adjust stop-loss and take-profit levels as needed.

Review Trades: Analyze trades to learn and improve strategies.

Avoid Revenge Trading: Don’t trade impulsively to recover losses.

Forex trading can be rewarding, but it is crucial to approach it with a clear understanding of the risks involved and to trade responsibly. Traders should consider seeking advice from financial professionals and only trade with money they can afford to lose.

Pros of Forex Trading

Following are the advantages of trading forex:

Largest Capital Market

You invest in the world’s largest financial market. With daily transactions crossing over USD 5 trillion, the sheer size of the forex market makes it truly a global marketplace with several profit opportunities.

24-Hour Market

The forex market operates around the clock so that you will find a trading opportunity any time of the day in at least one global time zone. As the forex market is a decentralized OTC market, its working hours are not subject to any centralized exchange system. For instance, trading hours begin at 5 PM EST in the USA on Sunday and roll continuously with other markets until Friday at 5 PM. Note that even though currency trading is restricted for retail traders on weekends, the exchange rate keeps moving.

Low Capital Requirement and Lower Transaction cost

In addition to very low investment requirements, even the transaction cost of trading forex is relatively lower. For instance, you can start dealing in currencies with just USD 100 or even lower. The main earnings of a broker comes from the bid-ask spread. Spread is measured in pips, the difference between the sell and buy price of a currency. However, some brokers do charge a commission or flat fees per transaction. You should factor in commission and spread while choosing a broker to lower your overall trading cost.

Availability of Leverage

The availability of high leverage is perhaps the main reason why forex trading appeals to so many people. It enables you to place a higher trading order with minimum capital.

Almost all the forex brokers offer leverage where you can borrow against deposited money in your trading account. It’s similar to taking a mortgage against your property; the only difference is that the margin requirement is very low. For instance, you can place a USD 100 order with just 3.33 US dollars if your broker offers a 1:30 leverage ratio. However, leverage is a double-edged sword. It can amplify your losses, so heed caution when trading forex with leverage. You should avoid using high leverage.

Most Liquid Market

Forex market is also the world’s most liquid market. Liquidity refers to how quickly an asset can be sold or bought without affecting its value. Major currency pairs such as EUR/USD or USD/JPY are considered most liquid than exotic currency pairs.

Major pairs are more liquid hence the spread will be lower on major pairs. The spreads on less traded pairs are higher due to low liquidity.

Volatile

The same volatility, which makes it riskier for traders, can also present ample profit opportunities. Volatile market conditions cause rapid changes in the value of currency pairs, thus, increasing your chances of gains from the trade.

But this is also a big risk. If a currency pair changes in its value by a lot then it is considered volatile and can be a risk for investors as you can lose big if you are on the opposite side. For example, USD/TRY is considered a very volatile currency pair. You may lose quickly if you are in the wrong position, also you must consider the Swap Rates when trading such currency pairs.

Scalable

Scalable means you can trade in mini, micro, or standard lots, making it easier for traders to control investment size and capital exposure.

Affordable Technology

You don’t have to spend money on acquiring expensive hardware and software to start with forex trading. All you need is a computing device or a smartphone with a reliable internet connection. Your broker will provide charting and trading technologies at no cost once you subscribe.

Cons of Forex Trading

Following are the challenges or disadvantages of trading forex:

High Risk

Forex market is not ideal for many traders due to its high risk. The market risk in forex trading is much higher compared to other capital markets like stocks, commodities, etc. The involvement of leverage further increases the risk of losing a substantial amount within a few seconds.

The market is active 24 hours a day and any news event around the globe can affect the prices of currency pairs. Hence, at times it becomes impossible to correctly predict the price movement.

Lack of Transparency

There is no particular location from where the forex market is controlled or managed. Foreign currencies are exchanged in many ways mainly through central banks, private banks, large financial institutions, etc. The forex market is largely influenced by large-scale market makers, liquidity providers, and banks. Hence, there is no transparency about how the trade order is getting executed. The trading volume and market sentiment are also difficult to predict in the forex market.

Complex Valuation Method

The value of one currency in return for another keeps on changing due to multiple reasons at every minute. It is quite complex for retail traders to calculate the valuation of one currency in terms of another. The valuation depends on the economic and financial details of the involved currencies and their predictions. Compared to other capital markets, it is much more complex to do a valuation of the currencies.

Difficult to Learn

Stocks, commodities, and other markets are much easier to comprehend compared to the forex market. In the stock market, traders can get assistance from experts and portfolio managers. Comparatively, it is challenging to learn forex trading and understand the forex market. Traders have to learn most of the forex trading on their own.

These are the common ways in which a forex broker will charge the traders in Malaysia for trading.

1) Spreads: Spreads are the major component of fees involved in forex trading. This is the difference between the bid and ask price or the buy and sell price.

Wider spreads mean lesser profit and lesser probability to make profits in a forex trade. Clients should seek brokers that offer narrower spreads.

2) Trading Commission: The commission that is incurred while executing trade orders is called a trading commission.

Some brokers offer commission-based trading on currency pairs with low spreads or zero spreads. Commission-based spread-free trading is considered ideal for large-volume traders and scalpers.

A commission on forex pairs can range from $2 to $10 for a Roundturn trade (both sides) of a Standard Lot. Details of commission (if charged) must be checked before opening the account.

3) Swap Fees: Swap fees are also called overnight charges. These are the charges that are incurred if a trading position is kept open overnight.

Orders that are opened and closed on the same day will incur no swap fees at all.
For every night the position is kept open, the swap fees will be added. Swap rates or overnight charges differ from broker to broker on every instrument.

4) Non-Trading Charges: These are the charges that will be incurred without executing trade orders. Non-trading charges can be of various types and can be tricky to identify as they are not clearly mentioned.

5) Inactivity Fee: An inactivity fee is a fee that gets deducted from the account balance if no trade orders are executed in a prolonged period of 3 months to 1 year.

6) Deposits & Withdrawals: Deposits and withdrawals can incur additional commission for some or all of the methods. Clients must check the commission or fees for deposits and withdrawals.

Other non-trading charges include account opening fees, conversion fees, internal transfer fees, etc. Subscription to additional services can also cost additionally.

Clients must enquire from the support executives about the non-trading charges separately.