Is online Forex trading legal in Malaysia?

The legality of online Forex trading in Malaysia is something many traders are unsure of.

This stems largely from the misinformation found in anonymous posts in trading forums, which are fuelled more by fear rather than fact.

It also does not help that Bank Negara Malaysia (BNM) has not explicitly stated their stance on the matter.

However, if you actually go to the BNM website and read through the relevant sections, the answer is quite clear.

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So… is online Forex trading legal in Malaysia?

Read on to find out.

Why Bank Negara Malaysia Restricts Currency Flows

To understand the root of the issue, we’ll first have to understand why Malaysia is especially strict about currency flows in and out of the country.

As a developing nation that relies significantly on exports, large currency fluctuations of the Malaysian Ringgit are undesirable (just look at the 1997 Asian financial crisis).

Thus, the BNM wants to control - to a certain extent - fluctuations of the Ringgit by restricting its foreign currency exchange to only licensed banks and financial institutions.

Now as a retail Forex trader, you’re probably thinking, “hey, but I’ll just be trading the major and minor currency pairs, none of which involve the Ringgit”… and you’d be right!

The main aim of the BNM is to limit speculation of the Malaysian Ringgit. It doesn’t care much about the USD, Euro, or Japanese Yen. That’s the first thing to keep in mind.

Malaysia’s Exchange Control Act of 1953

Officially, the Exchange Control Act states that it’s an offence for anyone to be involved in a foreign currency transaction with anyone who is not an authorised dealer.

This essentially means that the buying and selling of foreign currency in Malaysia is only allowed with licensed commercial banks, Islamic banks, investment banks and international Islamic banks with the relevant license.

The Root of the Issue

Since you’ve probably not read everything in the links provided (admit it!), I’ll save you the trouble and summarise the main points for you.

The confusion about the legality of retail Forex trading in Malaysia stems from two conflicting points:

  • You are only allowed to exchange currencies with licensed financial institutions
  • You may send (and then exchange) up to RM10,000 for overseas investment purposes per transaction to non-licensed financial institutions

The thing is, the law is not crystal clear about which category “retail Forex trading” falls under.

As a retail trader trading with an offshore broker, are you exchanging currencies? Or are you considered to be investing your funds overseas?

Consider This

Online Forex trading is legal in Malaysia?

Laws (especially in Asia) are worded such that the state will always have the upper hand in most situations.

For example, under Singapore law, a gathering of 5 or more people is designated an “unlawful assembly”.

Does this mean that the police are out there arresting everyone who gathers in groups of 5 under suspicion of criminal activity?

The answer is no.

But if the authorities wanted to arrest any particular group of people under that law, it technically could.

The question then is, why would the government want to do that?

Unless they have good reasons, the authorities wouldn’t be wasting their time and effort.

This brings us back to the question of legality regarding retail Forex trading in Malaysia.

Technically, the BNM can bring a case against you if you’re a Forex trader, and accuse you of breaking the law.

However, they probably won’t. Not unless you give them a reason to.

So Is Online Forex Trading Legal In Malaysia?

​The strictly (and technically) correct answer is no.

But the practical answer (which is probably the answer you’re more concerned about) is that you won’t be arrested just for being a retail Forex trader.

Note that this is only valid if you are trading your own funds. If you are trading with the funds of other people, or are soliciting the funds of others, the authorities will come after you.

Also note that this discussion does not take into account Islamic customs and law, which to the best of my knowledge are not technically enforceable under Malaysian state and federal law.

The Bottom Line

The way laws are worded are such that you’re probably technically breaking several laws right now without even knowing it.

That’s the context with which to consider this issue.

So here’s the bottom line:

If you’re a retail Forex trader trading with your own money and don’t disturb others, you probably won’t get in trouble with the law.

However, if for any reason the authorities are out to get you, it will argue in court that you are technically breaking the law. And along with that, it will probably dig out another 20 laws you’ve technically broken without you even knowing about it.

This is something that 99.99% of Malaysian retail Forex traders don’t have to worry about, but there is a risk nonetheless.

Disclaimer: I am not a lawyer, nor do I play one on TV. This is all simply my opinion based on my research. You are fully accountable for your own actions.

What do you think? Is Forex trading legal in Malaysia?

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