Forex Trading Philippines – A Beginner’s Guide

Highly famed for being one of the largest and most liquid markets, the forex market presents plenty of potential for traders. But it is not without its challenges.

Before you begin trading, you need to make sure you understand the market and find a suitable forex broker. That’s where we come in – we’re here to help you kick start your forex trading in the Philippines.

This guide covers everything you need to know about Philippines forex trading. We’ve covered the market basics, reviewed the top forex brokers, and provided a step-by-step guide on how to trade forex in the Philippines today.

How to Trade Forex in Philippines in 3 Quick Steps

If you are keen to start trading forex immediately, simply follow the three steps below:

Step 1: Pick a Forex Trading Platform in Philippines

One of the most important steps to beginning forex trading in the Philippines is to choose a broker. There’s plenty to pick from, so you need to compare the various platforms and select the right one for you.

To help you out, we’ve reviewed many Philippines forex broker and picked out our top picks.  Let’s take a look at the best forex trading platforms for Filipino forex traders, all of which have the necessary trading tools that can greatly help you in your forex trading journey.

Step 2: Learn How the Forex Market Works in the Philippines

Before you put your money on the line, it’s important to have an understanding of how forex trading in the Philippines works and the associated risks. Here’s what you need to know.

What is Forex Trading?

In a nutshell, forex trading is the exchange of one currency into another with a view to making a profit. The forex market is a decentralized over the counter (OTC) market for exchanging fiat national currencies against each other, such as the US dollar, the Euro, and the Great British Pound.

The forex market works pretty much like any other market, but it’s important for beginners to understand the dynamic of the market and the way currency exchange works. As of 2019, the forex market is the largest and most liquid financial market in the world with an average daily volume of $6.6 trillion.

How does Forex Trading work?

The forex market is run by the interbank market, which is the arena of currency market exchange where banks are responsible for the exchange of different currency pairs. Because the forex market if fully decentralized, it is open 24 hours a day five days a week in different parts of the world. Currency pairs are primarily classified as major, minor and exotic, with major currency pairs made up of the USD and another currency accounting for at least 80% of the total volume of the forex market.

As you already know, when you trade forex you trade one currency against another, hence, you can benefit from changes in the exchange rate between the two currencies. Currency pairs are quoted in pairs such as the EUR/USD, USD/JPY, and USD/PHP. The first currency is known as the base currency and the second currency, also known as the quote currency, represents how much you are willing to pay in order to buy the base currency.

For example, looking at the EUR/USD pair, the EUR is the base currency and the USD is the quote currency. If the current rate is 1.1205, this means that it costs 1.1205 USD to buy one EUR. Currency pairs are quoted in terms of ‘pips’ –  the smallest unit of measurement. For example, if the EUR/USD rises from 1.1205 to 1.1206, that would be an increase of one pip.

Another important factor to understand is that forex currency pairs are traded in lots. A standard lot is 100,000 units of the base currency, however, you can also trade micro and mini lots which are in the size of 1000, 10,000 respectively.

How do Filipino Traders Make Money from Forex Trading?

Filipino traders can make money in the forex market by speculating on the price movement of currency pairs. Due to the availability of leverage (margin trading), forex traders can make a high return on a single trade without risking a large amount of money. Once a trader has a positive win rate and an accurate risk-reward ratio, it is possible to make a decent consistent income. Yet, you will have to find the best trading hours, the type of trading style that suits your personality, and get familiar with forex terminology and economic factors the drive the forex market.

What Forex Trading Terminologies Should a Beginner Know?

If you are a beginner in the Philippines that wants to start trading currency pairs, you must get familiarise with basic terms and the jargon of the forex market and financial markets as a whole. Here are some important forex terms that you will encounter during your forex trading journey.

• Spread – Spread is the difference in pips between the bid and ask price. For example, if you get a quote on the EUR/USD of 1.1220/1.12201 then the spread is 0.0001, or 1 pip.
• Margin requirement – In forex trading, a margin requirement is a percentage of the full amount required to open a position.
• Slippage – Slippage occurs when a market order or a stop-loss order is executed at a different price than previously set by the investor in the order. Some brokers offer ‘low slippage’ and therefore would still fill your orders based on the price set on the order, and not the executed price.
• Rate Hike and Rate Cut – Interest rates are extremely crucial to day traders and some would say that the forex market is ruled by interest rates changes. Basically, if there’s a rate hike, the currency will usually appreciate and the opposite. But being alert to central banks’ rate hike and rate cut announcements is not enough, and you should follow the factors that may or may not determine if a central will raise interest rates like CPI, GDP, etc.
• Exotic currency pairs – An exotic currency pair is any Forex pair that does not include the combination of major or minor currency pairs. These pairs usually consist of a major currency alongside a currency of an emerging-market economy such as the Philippine Peso versus the US Dollar, USD/PHP.
• Margin call – A margin call in forex occurs when a trader has no sufficient amount of money to open trades or hold a position. A margin call is, therefore, a risk warning from the broker and that the account needs more funding.

What Currency Pairs can Filipino Forex Traders use?

Filipino forex traders can trade all currency pairs that are available on online trading platforms. If you are authorized to open an account with one of the regulated brokers above, then you will be able to trade on any currency pair.

The most commonly traded pairs are majors like USD/GBP, but many brokers support minor and exotic currencies, including the Philippine Peso. Since 1993, the Philippine Peso has become a free-floating currency and is offered by a few forex brokers on the market, such as IG.

What is Leverage in Forex Trading?

Leverage in forex essentially involves the borrowing of funds from the brokerage firm in order to increase the trader’s amount of capital. This means you can have a small amount of capital in your account but by using leverage, you can trade with a larger amount in the market.

Some Philippines forex trading platforms offer a high leverage ratio of up to 500:1 and even 1000:1, but it is extremely important that you realize that leverage is a double-edged sword. It has the potential to significantly enlarge your profits but also increases the risk of losing your capital. If you’re a beginner, it is therefore recommended that you use a low leverage ratio of up to 30:1.

What You Need to Do Before Trading Forex

Trading forex can potentially be a great way to make an additional or primary income. But, if you are planning to become a professional trader you must hone your skills and constantly improve your knowledge – something that can take many years. Here are some points every trader should consider before start trading currency pairs:

• Choose a broker and trading platform that matches your needs and trading style
• Understand Economy and the Markets
• Practice your skills and strategy on a demonstration account
• Apply risk-reward ratio
• Focus on 1-3 currency pairs
• Find forex news and market data platform
• Learn technical analysis – how to read and understand charts
• Understand commissions and spreads
• Don’t use a high leverage ratio

Step 3: Learn How to Manage Your Money When Trading Forex

If you want to become a professional trader, then you need to be patient and learn all the time. Many professional trading companies that hire beginner traders allow them to lose funds of the company for a time period of around 6-9 months as a learning curve before they become profitable traders.

As an individual trader, there are a number of things you can do to reduce the risk of losing your capital and manage your funds effectively.

• Decide How Much you Want to Invest

The amount you need to invest depends on your financial status and the returns/losses that seem rational and appropriate to your lifestyle. Otherwise, you might feel like a gambler if the stakes are too high, or feel a lack of motivation if the stakes are too law.

Therefore, the only one who knows what is the right amount to deposit is you. But, as a general guideline, it’s advisable that you start with the minimum deposit requirement, or a bit higher, to ‘test’ the platform, see how trading works for you, and learn the dynamics of the market.

• Start with Small Trades on a Demo Account

A demo trading account is a great way to see which trading platform and broker is the right for you. But more importantly, if you are a beginner then it’s a great way to get familiar with the market, the trading platform, the available financial instruments, the charting package, and the trading tools provided by the broker.

We recommend that you first practice on a demo account, but try to make it as real as possible. It won’t help you if you make unrealistic trades and then move on to a real live trading account. You should use the demo account as a tool to practice your trading skills.

• Learn Forex Trading Strategies

There are tons of forex trading strategies that you can apply. Each strategy can be the right one for different purposes and it might take time until you find a set of trading strategies. For example, many forex traders use a carry trade strategy that involves buying a currency with a high-interest rate and sell the currency with a lower interest rate.

Here are the most common forex trading strategies:

• Swing Trading – Swing trading is a trading technique that focuses on buying and selling financial assets within the timeframe of a few days, usually 2-5 trading days.
• Day Trading – Day trading is the act of trading financial instruments in short timeframes with an important rule of closing all trades by the end of the day.
• Scalping – Scalping is a trading style where traders typically make small profits in an extremely short period of time (seconds, and minutes).

Step 4: Create a Philippines Forex Trading Account

Know you’ve chosen a broker and learned the basics, the next step is to create a Philippines forex trading account and place your first trade.

Choose from the list of brokers outlined above, submit your KYC information, and make an FX trade.

Pros and Cons of Forex Trading in the Philippines

Conclusion

The forex market is a highly volatile and highly liquid market, which makes it an attractive prospect to many traders. However, before you begin forex trading in the Philippines, it’s vital you understand the market, develop a forex trading strategy and choose a top broker.

References

To ensure we bring you the most reliable and accurate information possible, our writers use primary sources to support their content. These include studies, government resources and commentary from industry experts.

• Bloomberg. “Global Currency Trading Surges to $6.6 Trillion-a-Day Market”. https://www.bloomberg.com/news/articles/2019-09-16/global-currency-trading-surges-to-6-6-trillion-a-day-market. Accessed June 17, 2020.

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