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Different currency symbols; image used for HSBC Malaysia Liquid Foreign Exchange Explained article

Foreign Exchange Explained

Forex can seem like a daunting world if you are unfamiliar with it. So, let's try setting the record straight on foreign exchange and clear up some possible myths and misconceptions.

Whether you are a newbie or seasoned hand in the foreign exchange scene, the world of forex can seem daunting and mysterious with hype, myth and hearsay being bandied about what it really is and how you can successfully navigate it.

Let's try to clear the air on some of the most common misconceptions about forex so you can make more informed decisions whether you are dabbling in forex trading and investing, or just want to get the best rates on forex conversions.

Myth 1: The forex market is risky

Many people are led to believe that the foreign exchange market is a riskier option than other investments like equity, bonds or real estate.1 The reality is that any market, any investment, and any trade needs to be assessed, and the risks need to be contained in order to achieve the best results.1 Choosing better growth usually means accepting more risk whether you're trading currencies, stocks, bonds or investing in real estate.1

Myth 2: Forex is a short-term strategy

Often, it is macroeconomic factors that influence the movements on the foreign exchange market – and those factors don't change that fast.1 While the day-to-day news cycles can cause unpredictable forex movements, there are still long-term trends that exist in many currency relationships.1 It is important to take these long-term trends into consideration when you plan your forex strategy.1

Myth 3: You can get rich quickly in forex

Short-term speculators often jump into the forex market hoping to profit quickly with very little effort.2 Unfortunately, making a quick profit is rare. Investing via forex trading takes a fair amount of effort to master, as well as significant patience and consistency.2 Forex trading requires consistency, not a gambling mentality.2

Myth 4: Trend analysis is the best way to trade

A variety of factors can influence exchange rates.1 While many newcomers look at historical data and long-term relative exchange rates to evaluate currencies, experts understand that it is the fundamental relationships that generally hold true over the long-term.1 For example, trade policies, current economic conditions, geopolitical turmoil and market sentiment will often trump historical valuations when it comes to predicting currencies in real-time.1

Make forex work for you

With a better understanding of forex, you can now be more confident in incorporating it as part of your wider financial management and investment strategy. And we're here to assist you.

At HSBC, we have forex capabilities that you can take advantage of to deal with your currency needs from something as basic as making foreign currency transfers overseas to diversifying your investment portfolio to include foreign currency investments.

HSBC provides forex solutions in these four key areas:

Savings

  • Manage your global finances with the HSBC Everyday Global Account – an all-in-one multi-currency account that gives you access to Ringgit Malaysia and eight major currencies in one account.3
  • Save in 12 different currencies for future use and to hedge against currency fluctuations with our foreign currency savings and time deposit accounts.3

Investments

  • Live foreign exchange4 rates is available via both HSBC Internet Banking and our branches, allowing you to take advantage of exchange rate movements when purchasing or selling a currency to get the best rate possible.
  • HSBC offers a vast variety of foreign currency investment instruments including Bond/Sukuk, structured investments, mutual funds, Dual Currency Investment and more. You may effectively use foreign currency investments for portfolio diversification to potentially increase return and lower portfolio risk.

International Transfers & Payments

  • Single access to manage all your global HSBC accounts and make payments with Global View Global Transfer.5
  • Make fast and secure online telegraphic transfers and foreign currency transfers/conversions.6 HSBC Premier customers enjoy fee-free and instant online international money transfers7 to any individual HSBC accounts in 18 countries/regions.

Overseas Travel

  • No matter where you are in the world, you only need one card to gain access to eight foreign currencies plus Ringgit Malaysia with the Everyday Global Visa Debit Card.
  • Make payments and foreign currency cash withdrawals overseas, plus shop online with the Everyday Global Visa Debit Card.
  • Enjoy the added benefits of zero cash withdrawal fees across HSBC Global ATMs worldwide8 and zero currency conversion fees9 when you travel overseas with the Everyday Global Visa Debit Card.

Easy forex management with a robust online foreign exchange platform

While HSBC offers a variety of ways to access, manage and transact forex, from online banking, mobile banking, phone to in-branch, the most efficient channel is via our online foreign exchange platform which can be accessed through personal internet banking or the mobile banking app.

Through the online foreign exchange platform, you can:

Open new accounts

Open foreign currency savings or time deposit accounts3 at home or on-the-go (only available for existing HSBC Bank MYR Demand Deposit Account10 holders registered with internet banking).

Gain foreign exchange insights

Track currency performance and get market updates with new foreign exchange insights to make informed investment decisions.

Manage your global accounts

Global View Global Transfer5 provides a single-entry point to access, view, manage and transfer funds between your accounts worldwide with zero hassle.

Beyond the convenience that the online foreign exchange platform offers, there are also other benefits to going online to manage your forex needs including:

  • Access to 24/7 currency conversions4
  • Potentially better exchange rates with live exchange rates4
  • Making transactions any time of the day that suits you
  • Choice of more foreign currencies

To learn more about our forex solutions and how it can fit your financial needs, speak to your Relationship Manager or visit a branch today.

Key factors that influence exchange rates

Inflation rates

Inflation rates often impact a country/region's currency value.11 A low inflation rate typically supports a rising currency value as the country/region's purchasing power increases relative to other currencies.11 Conversely, a higher inflation rate will cause a depreciation in currency against other nations.11

Interest rates

Interest rates are closely related to inflation rates, and both are interconnected to exchange rates.11 In general, higher interest rates tend to attract foreign investment, increasing demand for a country/region's currency and can have a positive knock-on effect for the country/region's currency.11 Lower interest rates, on the other hand, may lead to a depreciation of a currency.11

Note: Inappropriate levels of interest rates eg. extremely high interest rates may cause disruption to economic activities which may lead to lower economic growth and currency value.

Monetary policy and economic performance

If a country/region has a history of strong economic performance and sound monetary policy, investors are more likely to invest in that country/region.10 This will often increase the demand and value of the country/region's currency.11

Geopolitical stability

The political stability of a country/region can also impact the strength of the currency.11 A country/region with less risk for political turmoil will be more attractive to foreign investors who would be more willing to hold cash assets in the currency.11 This can lead to the appreciation of the value of the country/region's currency from foreign capital.11

Sources:

1. OFX, The 5 biggest forex myths you need to know, 13 August 2019.

2. Investopedia, 10 forex misconceptions, 25 June 2019.

3. Protected by Perbadanan Insurans Deposit Malaysia up to RM250,000 for each depositor. The 8 Foreign Currency accounts will be opened automatically the following day.

4. Applies to Foreign Currency to Foreign Currency transactions only. Exchange rates for Foreign Currency conversion involving Malaysian Ringgit is from 9am to 12am on business days. If you perform any transfer outside those hours, the actual amount to be debited will be based on the next business day's exchange rate.

5. Subject to local regulatory and HSBC internal policy requirements.

6. For HSBC Premier or HSBC Advance customers only. Subject to destination country/region's local regulation and HSBC internal policy requirement.

7. HSBC Advance customers will be charged USD7 (debit foreign currency account) or RM22 (debit Ringgit Malaysia account) per transaction. Instant foreign currency to foreign currency exchange transfer is available 24 hours 7 days. Transfer for Ringgit Malaysia is from Monday to Friday 9.30am to 3pm. Receiving countries/regions will be expanding.

8. For HSBC Premier customers only. ATM operator fees may apply for use of non-HSBC ATMs.

9. Applicable to successful retail purchases, online shopping and cash withdrawals performed with Visa debit card under the 8 available currencies only. For transactions on HSBC's Global ATM network, the entire transaction amount shall be converted at the prevailing HSBC exchange rate if you have insufficient supported or non-supported foreign currency to complete a transaction. For Visa Plus ATM withdrawals and retail purchases, the entire transaction amount shall be converted at the prevailing HSBC exchange rate if you have insufficient supported foreign currency to complete a transaction. The entire transaction amount shall be converted at the prevailing rate as determined by Visa International for non-supported foreign currencies. All these transactions will be declined if there is insufficient fund in the Ringgit Malaysia credit balances.

10. HSBC Bank MYR Demand Deposit Accounts are: HSBC Premier Account, HSBC Premier Junior Savings Account, HSBC Advance Account, Statement Savings Account, Passbook Savings, Basic Savings Account, Generic Current Account and Basic Current Account.

11. OFX, 6 factors influencing exchange rates and what you can do about it, 25 July 2019.