Legal Issues with Forex in Malaysia

(the following are selected excerpts from a reply I wrote in another private forum in reply to a similar concern)

1. Please read the Exchange Control Act along with the following BNM circular to understand the context: BNM Statement

The circular is called ECM9 and it has a section that says: "A resident individual with domestic ringgit credit facilities is allowed to convert ringgit into foreign currency up to RM1 million per calendar year for investment in foreign currency assets."

2. When Bank Negara mentions "foreign currency" only (as opposed to foreign currency assets), they usually mean foreign currency CASH. NOT the balance in your bank account, which, if you really think about it, is JUST A NUMBER.

3. Authorized dealers of foreign currency CASH in this country are Malaysian Banks and licensed money changers.

4. The term "scheme" refers to the deposit-taking by ONSHORE (not offshore) individuals or companies that are NOT LICENSED to accept deposits. The only licensed ONSHORE deposit-takers in this country (as far as I am concerned) are Malaysian Banks and discount houses.

5. Note that BNM mentions "illegal investments". Which means that "LEGAL investments" are ok.

6. "Under the Exchange Control Act 1953 (ECA), it is an offence for a person in Malaysia to buy or sell foreign currency or do any act which involves, is in association with, or is preparatory to, buying or selling of foreign currency with any person, other than an authorised dealer. It is also an offence for a person to aid or abet another person to buy or sell foreign currency with any person, unless the person is an authorised dealer."

7. ... which means I CAN sell my ringgit asset to USD with any authorised dealer (i.e. any Malaysian bank) and invest my new USD asset as per ECM9. The first part of the last paragraph refers to buying/selling foreign currency against the RINGGIT. How I invest my new USD asset afterwards will be my own affair and I won't cry about margin calls because I should always be financially solvent every time and as long as I'm strict with my stops.

8. Some of the examples of dangers given in BNM's last press release are true, however. Some disreputable training programmes do use hard-ball tactics to entice unready and unprepared investors/traders.

9. I also get the impression that some programmes are merely "introducing brokers" for fly-by-night FX brokers.... which is why there is a need to do proper research as to which brokers are (relatively) tightly monitored by the offshore countries' monetary authorities.. which basically rules out a lot of US brokers, and many Russion ones.. ;-)

10. As for the "margin call", this so-called "modus operandi" is no different from trading KLCI futures, for example. It only becomes an issue when the trader is trading on borrowed money (which HE SHOULD NEVER EVER DO!).

11. What must have happened: a financially unready investor loses money trading on borrowed money (eg. credit card advances). If this investor is already undisciplined enough to trade on credit, I think it's reasonable to expect he lost money due to undiscplined stop-loss management or consistently wrong application of the techniques taught to him. (such people should be called "gamblers", by the way)

12. What does he do next? He goes to complain to the government. *sigh* What to do?

13. To recap: Based on MY interpretation of the rules, FX trading (on non-MYR pairs) is legal subject to conditions:

Do trade responsibly.

BE responsible for your own trading.

Do not trade for someone else i.e. with someone else's money (because that means unlicensed deposit-taking).

Do not ask someone to trade on your behalf (because that means placing a deposit in an unlicensed person or company).

Do NOT trade against the ringgit.

Do convert your ringgit asset to USD (for example) with any Authorised Dealer (i.e. Malaysian Banks) without fear. And after you receive your new USD asset, you may trade/invest (i.e. place a margin deposit) within the context of ECM9 to your heart's content.

Do NOT convert your ringgit asset to USD with unauthorised dealers (you know who they are).

Do research for (relatively) reputable offshore brokers.

NEVER EVER EVER trade on credit. Always make sure you have backup capital to help you pay day-to-day bills during the losing spells.