In this article, we’ll be looking at the major benefits of forex trading, especially in Malaysia. Forex trading is popular in emerging economies as it provides arbitrage opportunities in the global market. What does it mean? It means you can capitalise on the forex currency fluctuation to your benefit.
Imagine if you can go to your money changer and change RM42,000 to the current rate of USD10,000. The following day, if the USD rises in value 1USD=RM4.3, you can change the same USD10,000 to MYR43,000 and get a profit of RM1,000.
In essence, that is basically the concept of forex trading. There are other benefits of forex trading in Malaysia that you can capitalise on such as:
Leverage
Imagine if you have RM100 and your brokerage platform allows 20X leverage. What does this mean?
This means that you can trade up to 20X your current initial deposit. If you have RM100, it means you can utilise RM100 x 20 = RM2,000 for your trading position.
Does this mean I have to owe another RM1,900 to my broker? Well, technically, yes and no.
For example, if you choose to deploy RM2,000 for your trading position, you will be subjected to more market risk. If your position worth RM2,000 falls 5% to RM1,900, you will receive a margin call that requires you to topup to cover your position. However, you can also maximise your gains as a 5% increase means you will get RM100 as profits. This translates to 100% gains from RM100.
Leverage amplifies your risk. It’s a double-edged sword. Before using any leverage, make sure you are aware of your risk profile.
Bonuses
Forex trading platforms do offer bonuses to the customers. What are bonuses? Bonuses are the funds provided by the forex broker in a live account to promote their platform.
The type of bonus that can be potentially offered to the customers range from:
- Cashback program
- No-deposit bonus
- Welcome bonus
- Loyalty program bonus
Usually, the most common bonuses among forex brokers are the welcome bonus. It is available for first time customers upon signing up and does not require you to deposit any funds. However, you have to be aware that the forex broker companies reserve the right to withhold this fund from withdrawal until you have used the platform. You may well ask why do these companies are willing to give money for free?
Well, firstly, they wanted to entice the customers to sign up and trade using their platform. Forex industry is quite saturated with plenty of options to choose from. Therefore, to stand out, they have to reward the customers for signing up.
Secondly, the amount of money giveaway is usually of low value and taken into account as their marketing costs. Since forex trading advertisement is not allowed in Malaysia, welcome bonuses are one of the most effective ways to market a forex trading platform.
For example, OctaFX offers an $8 welcome bonus to first time customers with no deposits required. You will need to submit relevant documents for verification before being able to gain access to the bonus.
Forex Liquidity
What is liquidity? Imagine you own a house in Shah Alam worth RM500,000. You want to sell the house tomorrow at RM500,000 or maybe lower. However, there are no buyers for the house and you have to wait for a few months before getting calls from prospective buyers. This means that the asset that you own (House in Shah Alam) is illiquid or has low liquidity.
Examples of high liquidity markets are stocks, cryptocurrency and forex trading. This means that there are always sellers and buyers in the market. Higher liquidity simply means there are more transactions taking place. For example,USD/GBP is one of the most liquid currency pairs in forex markets and offers a chance for traders to capitalise on this. You will always find someone to sell it to and you can always find someone to buy it from.
Being a forex trader, you would not need to worry about the mode of selling and to whom. The only important thing is the price. To gain from forex trading, you have to buy the currency at a low price and sell it at a higher price. There are a lot of factors that can impact the price movement and liquidity such as:
- Geopolitical environment
- Political stability
- Natural disaster
- National interest rate
- Trader’s sentiment
These are only a few of the examples but in fact, there are countless reasons that can be factored in on currency fluctuations. They contribute to forex liquidity and keep the markets functioning.
Low Market Entry Costs
Did you know that you can start forex trading from as low as RM50? Yes. It is fairly cheap to get into forex trading and the low entry cost is the main reason why so many people get into forex trading. Compared to stocks, which require you to purchase a minimum of 100 units, there is no minimum purchase in forex.
The main thing to note in forex trading is the spread. The higher the spread, the more “expensive” it is for you to take a position. So, the clever thing to do when choosing a forex brokerage platform is to find a more cost-effective way to execute your trade. If you want to start with a low initial deposit, you can go for a cent account.
Cent account is the same as a normal trading account that allows you to show your balance in cents instead of dollars. If you use a cent account, you will be able to monitor with better scrutiny and be aware of every transaction.
Some of the examples of forex broker that offers cent account are:
1. OctaFX (Website)
Started in 2011, OctaFX is part of a group of global entities, which consists of Octa Markets Incorporated and Octa Markets Cyprus Ltd.
You can deposit your money in RM and it will be converted to USD or EURO. Upon signing up, you will get a bonus amount of $8. Besides, anyone can open up an account without having to put in a deposit. However, to withdraw, you have to deposit a minimum amount of about USD50 (RM210). The cost is relatively cheap as they also offer other benefits.
Other Features
- No deposit is required.
- Spread is floating starting from 0.6 pips.
- Platforms used are MetaTrader 4, MetaTrader 5 and cTrader.
2. XM (Website)
Founded in 2009, XM is globally renowned as one of the largest international investment firms and it has a large client base.
All traders opening a real account with XM for the first time will be eligible for a $30 bonus. There is a time limit of 30 days from the date of opening your account. You must claim the bonus before it is rendered unavailable at the end of the 30-day limit.
To open up a cent account, you would only need USD5 (RM21) for the initial deposit which makes it very accessible for most people.
Other Features
- No deposit is required.
- Spread is as low as 0.6 pips.
- Platforms used are MetaTrader 4, MetaTrader 5 and XM WebTrader.
Key Takeaways
- Major benefits in forex trading are that you can have access to leverage, bonuses, and a high liquidity market with low entry costs.
- Leverage is a double-edged sword that can amplify your risk in trading but also your gains.
- Be selective when choosing the brokerage platform for cost-effectiveness and bonuses provided.
- Low entry costs is an advantage in selecting a brokerage platform as you can deposit to a few platforms to select which one is the best for you.
Overall, the forex trading market has its own advantages compared to stocks, bonds or property. However, with this advantage, it also has additional risk that has to be counted for. Trading is not easy but requires discipline and commitment. Not everyone has the mental capacity to be a trader. However, if you are willing to learn, forex trading could be beneficial as a passive income.
Do you agree with the benefits of forex trading in Malaysia? Share your ideas with us and don’t forget to sign up on our platform to get updated with more content like this!