The Malaysian Central Bank clarified in February 2012 that trading foreign currencies in Malaysia is allowed, but only with licensed commercial banks, Islamic banks, investment banks, and international Islamic banks.

Forex Trading Regulations in Malaysia

Malaysia has enacted three main laws and regulations to regulate forex trading as follows. It is crucial for traders to understand in which trading situations these regulations are most applicable, and it is advised to ensure that the platform or broker you use complies with these rules.

1. Exchange Control Act 1953

This act imposes general restrictions on forex transactions for residents and non-residents. Non-residents face no restrictions on investing in Malaysian assets denominated in Ringgit, such as land, properties, and securities.

There are also no restrictions for non-residents to repatriate all profits, returns, and withdrawals from their investments in Malaysia in foreign currencies.

2. Securities Commission Act 1993

This act, including its updated version in 2017, empowers the Securities Commission of Malaysia to issue licenses and regulate securities trading firms.

3. Money-Changing Act 1998

This act aims to regulate the licensing and supervision of money-changing businesses and other related matters. According to the Money-Changing Act 1998, individuals licensed to buy and sell foreign currencies under the Exchange Control Act 1953 (ECA) should obtain a license under the Money-Changing Act 1998.

Regulatory Bodies for Forex Trading in Malaysia

Below is a list of agencies, bodies, committees, and groups regulating forex trading in Malaysia, which you can refer to for understanding the regulations of forex trading. In Malaysia, forex trading is only allowed when conducted with licensed commercial banks, Islamic banks, investment banks, and international Islamic banks.

Bank Negara Malaysia

Bank Negara Malaysia is the central bank of Malaysia, established on January 26, 1959. Its main objectives include issuing currency, acting as banker and adviser to the Malaysian government, and regulating the country's financial institutions, credit system, and monetary policy.

Malaysian Investment Development Authority (MIDA)

Formerly known as the Malaysian Industrial Development Authority, MIDA is the primary agency overseeing and promoting investment in Malaysia's manufacturing and services sectors. MIDA also outlines how currency exchange businesses, including retail forex traders, should operate in Malaysia.

Securities Commission Malaysia (SC)

The Securities Commission Malaysia (SC) is the regulatory body for securities trading in Malaysia. Its functions include supervising exchanges, central depositories, approving corporate bond issues, regulating all matters related to securities and futures contracts, and overseeing corporate mergers and acquisitions.

Financial Accreditation Agency (FAA)

Established in August 2012, the FAA aims to set higher learning standards under the guidance of Bank Negara Malaysia and leads efforts to standardize and accredit the financial services industry.

Shariah Advisory Council (SAC)

The Shariah Advisory Council (SAC) is empowered to determine Shariah law for Islamic banking operations, Islamic insurance operations, Islamic finance operations, Islamic development finance operations, or any other operations based on Islamic law principles, under the supervision and regulation of Bank Negara Malaysia.

Connection Between Bank Negara and Forex Trading

Bank Negara Malaysia was a significant participant in the forex market in the late 1980s. Under the leadership of Governor Jaffar Hussein, the bank's activities attracted global forex traders' attention.

Upon realization of the impact of its speculative activities by the Federal Reserve Chairman, the bank was required to cease trading. In the following years, the bank heavily sold off parts of its currency reserves and eventually technically went bankrupt in 1994.

Is Forex Trading Taxed in Malaysia?

In Malaysia, forex income is subject to income tax, but forex capital gains are tax-exempt. This means that if you're trading using Shariah-compliant accounts with no income generated from the trades, any gains should be tax-exempt.

How to Legally Trade Forex in Malaysia?

Now that you understand the legal status of forex trading in Malaysia, let's look at how to trade following the rules and regulations of Bank Negara Malaysia.

Trading forex legally in Malaysia involves using one of the approved institutions or brokers and maintaining Shariah-compliant accounts. Brokers or agents must strictly adhere to Shariah law.

Before investing, be sure to compare forex brokers and find out which ones are approved by Malaysian regulatory bodies.

How to Identify Scams？

While forex trading is legal in Malaysia, there are still many forex scams. Identifying what is a scam and what is legitimate is relatively simple.

As a trader, be wary of excessive claims and always be on the lookout for signs of fraud:

• Companies, headquarters, and bank accounts registered in countries/regions with loose banking regulations and tax systems.
• Scammers needing your bank details and signature, but unclear about their documentation and signatures.
• Engaging in fraudulent trades in a controlled environment rather than in real, open currency markets. Real risks exist in genuine, open currency markets, and profits are far from guaranteed.
• Fake recommendations and photos of individuals with large amounts of cash or luxury items are the simplest ways to attract unsuspecting individuals.
• Scammers paying the initial returns of small investments as bait to get you to agree to larger investments.

Conclusion

Forex trading is legal in Malaysia and needs to be conducted through institutions approved and supervised by the Malaysian government. However, as a trader, it's essential to select reliable forex brokers and equip yourself with proper educational materials before starting to invest in forex trading.

Moreover, achieving financial freedom through forex trading is highly desirable. However, be vigilant against forex trading scams and ensure that you don't fall into traps.