Step-by-Step Guide to Forex Trading in Malaysia

It can be difficult to start trading on the Forex market. Dozens of terms, instruments, and currency pairs rush in front of beginners and cause confusion. But you don’t have to trade in the turmoil. We are here to put order in your head and show you that it is possible to start trading forex in a simple and structured way.

Let’s meet Ahmad. He is a completely fictional man from Malaysia who, just like you, wants to start his journey in Forex but doesn’t know how to do it. Today, Ahmad will walk this path with the JustMarket team and become an example for you. Are you ready to become a real Forex pro? 

Step 1: Selecting a Currency Pair

Ahmad’s Forex journey begins with understanding and selecting the right currency pair to trade. In Forex, currencies are traded in pairs, meaning when you buy one currency, you simultaneously sell another. For Ahmad in Malaysia, a common choice is the EUR/USD pair, one of the most traded pairs globally due to its liquidity and relatively low spreads.

EUR (Euro) is the base currency, the one Ahmad is considering buying.

USD (U.S. Dollar) acts as the quote currency, representing the base currency’s price.

Each currency pair behaves uniquely and is influenced by economic, political, and market forces specific to the countries involved. Before Ahmad decides, he must consider several factors:

  • Volatility

How much does the price of the pair fluctuate? More volatile pairs can offer higher profits but come with higher risks.

  • Spread

This is the difference between the broker’s buy (ask) and sell (bid) prices. A narrower spread means less cost to Ahmad each time he trades.

  • Market Hours

Since Ahmad is in Malaysia, he needs to consider the trading hours when the markets for his chosen pair are most active. For EUR/USD, the optimal trading time would be during the overlap of the European and North American sessions.

By the way, we have a full-fledged guide on the Best Hours to Trade Forex in Malaysia. Read it to understand the topic better.

Ahmad understands that starting with a popular and highly liquid pair like EUR/USD can help him minimize risks associated with thin markets where spreads might widen unexpectedly. With this knowledge, he feels more confident about stepping into Forex trading by making an informed decision on his currency pair.

“Choosing the right currency pair is like picking the right partner for a dance. It has to match your rhythm and style.”

Step 2: Analyze the Market

With a currency pair selected, Ahmad’s next step is to dive into market analysis, a crucial skill for any aspiring Forex trader. Understanding the forces that drive currency values can help Ahmad make informed decisions about when to buy or sell.

For Ahmad, analyzing the EUR/USD involves looking at economic indicators, geopolitical events, and market sentiment. He starts by monitoring key economic releases from Europe and the U.S., such as GDP growth rates, Central bank policies, and inflation rates, as these can significantly impact the strength or weakness of a currency.

Political stability is another critical factor. Events like elections, government policy changes, or tensions between countries can sway market sentiment and currency values. For instance, if political instability weakens the Euro, it might be a good time for Ahmad to consider selling EUR/USD.

Read more in our Guide on Fundamental Analysis in Forex.

Ahmad also pays attention to technical analysis. This involves studying price charts to identify patterns and trends indicating potential buying or selling opportunities. Tools like moving averages, support and resistance levels, and Fibonacci retracements become part of his daily trading routine to predict future movements based on past market behavior.

“Dive deep into market analysis. It’s your map in the vast ocean of Forex trading.”

Step 3: Understanding Forex Quotes

After selecting his currency pair and conducting thorough market analysis, Ahmad’s next step is understanding how to read Forex quotes correctly. This knowledge is crucial for making accurate trading decisions.

Forex quotes are presented in pairs, reflecting the value of one currency relative to another. For Ahmad, trading EUR/USD means he needs to focus on how many U.S. dollars (USD) it takes to buy one Euro (EUR). The quote for this might look something like 1.19724, indicating that 1 Euro is equivalent to 1.19724 U.S. dollars.

Each Forex quote consists of two prices: the bid and the ask. The market will pay the bid price for the base currency (EUR in this case) in exchange for the quote currency (USD). Conversely, the ask price is what you need to pay in quote currency to get one unit of the base currency. The difference between these two prices is the spread, representing the broker’s fee for facilitating the trade.

Understanding these details helps Ahmad determine when to enter or exit trades. For instance, if he believes the Euro will strengthen against the Dollar, he might look for a lower ask price to buy the EUR/USD pair, hoping to sell it later at a higher bid price for a profit.

“Understanding a currency pair’s quote is like reading the pulse of the market – it tells you what’s happening now and what might happen next.”

Step 4: Implementing Risk Management

As Ahmad progresses in his Forex trading journey, he recognizes the importance of implementing sound risk management strategies. He understands that while trading offers the potential for significant profits, it also comes with the risk of losses.

One of the first risk management tools Ahmad learned to use is the “Stop Loss” order. This critical feature allows him to set a predetermined level at which his trade will automatically close, thus limiting his potential losses if the market moves against him. For example, if Ahmad buys EUR/USD at 1.2000, he might set a stop loss at 1.1980, limiting his loss to 20 pips.

Another strategy Ahmad adopts is to never risk more than a small percentage of his trading account on a single trade. Most seasoned traders recommend risking no more than 1-2% on any trade. This approach ensures that even losses won’t deplete Ahmad’s trading capital, allowing him to continue trading and recover over time.

Ahmad also starts to appreciate the value of having a trading plan. His plan includes entry and exit rules and criteria for choosing trades, goals, and an assessment of his risk tolerance and capital allocation. This structured approach helps him avoid emotional trading decisions and keeps his trading disciplined and consistent.

“Manage risks as if you’re securing your fortress; a well-protected trader is a successful trader.”

Risk Management Tips on Forex

Ahmad has put together a list of the most effective forex risk management tips that you should pay attention to:

  1. Utilize Stop Loss Orders. Always use stop loss orders to limit potential losses. This tool automatically closes a trade at a pre-defined level, preventing further losses in case the market moves unfavorably.
  2. Risk Only What You Can Afford to Lose. Determine the amount of capital you can risk on each trade, typically recommended to be no more than 1-2% of your total trading balance. This strategy helps preserve your trading capital over the long term, allowing you to withstand drawdown periods.
  3. Leverage with Caution. While leverage can amplify profits, it also increases the potential for significant losses. Be cautious with the amount of leverage you use, and ensure it aligns with your risk tolerance and overall trading strategy.
  4. Regularly Review and Adjust Your Strategy. Markets are dynamic, and what works today may not work tomorrow. Regularly review your trading strategy and performance. Make adjustments based on market conditions and your trading experience.
  5. Diversify Your Trades. Don’t put all your eggs in one basket. Diversifying your trades across different currency pairs and markets can reduce risk and improve the stability of your returns.
  6. Set Realistic Goals. Setting realistic trading goals can help you maintain focus and not overreach on risky trades in pursuit of unattainable returns.

Forex Is Calling. Are You In?

Embarking on your Forex trading journey, like Ahmad, requires clarity and structured learning. By following each step methodically — from selecting the right currency pair to understanding market dynamics and managing risks — you’re laying a strong foundation for successful trading. Remember, the world of Forex is dynamic and demands continuous learning and adaptation.

Ready to test your newfound knowledge without risking real funds? Sign up for a JustMarkets Demo Account today and practice trading in a risk-free environment. Gain confidence and sharpen your trading strategies before stepping into the live market!