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A Guide to Forex Trading in Hong Kong

Hong Kong is one of the largest financial centers in Asia. Since its inception in 1995, the Index of Economic Freedom has ranked Hong Kong as the #1 region in the world with the highest degree of economic freedom. Hong Kong’s service-oriented economy largely depends on finance and international trade.

Though it’s part of China, Hong Kong’s banking system and capital market rival those in London and New York. Its stable currency, the Hong Kong Dollar (HKD), offers up an ideal location for many forex brokerages. Finding a competent forex broker based in Hong Kong makes trading forex easier compared to trading in many other countries.

Main Takeaways: How to Trade Forex in Hong Kong

  • Consider your needs. How experienced are you with the forex market? If this is your first time trading forex, you’ll want to find a broker with great educational materials. Assess your needs as a trader before beginning.
  • Pick a broker. Based on what you decided, look through your broker options to decide which gives you the trading environment you need.
  • Start trading. Once you’ve selected a broker, you can open your account, fund it, and begin trading. Note that if you select a broker with a demo account, this would be the best time to practice before using your own money.

Trading Forex in Hong Kong

Forex trading in Hong Kong entails finding an adequate broker for your needs. The first important element to consider in selecting a forex broker for your needs is whether the broker has oversight from the Hong Kong Securities and Futures Commission (HKSF).

The HKSF is an independent statutory body that regulates the securities and futures markets in Hong Kong. The agency was established after the stock market crash of 1987 and began operations in 1989 to regulate the Hong Kong markets.

The agency operates independently from the government of the Hong Kong Special Administrative Region and derives its remedial and disciplinary powers from the Securities and Futures Ordinance (SFO).

Forex brokers registered with the HKSF must keep adequate accounting and control systems and maintain liquid capital and paid-up share capital of a minimum of $5 million HKD or an equivalent amount in another approved currency.

The HKSF keeps a database of all securities and futures leveraged foreign exchange intermediaries that do business on a daily basis in Hong Kong. You can see if a broker is registered and regulated by the Hong Kong commission at the HKSF Public Register of Licensed Persons and Registered Institutions.

How to Start Trading Forex in Hong Kong

Fortunately, many other major and internationally-regulated forex brokers accept Hong Kong clients. These include Saxo Bank, IG, SwissQuote and FOREX.com, to name only a few.

While several forex brokerages are based in Hong Kong, some of them operate with no oversight from the HKSF and would not be recommended. This latter group includes GCM Asia, Guotai Junan International, ApuroFX and Auctions CM.

Among the Hong Kong-based online brokers regulated by the HKSF, KVB Kunlun is also regulated by the Australian Securities and Investment Commission (ASIC), SHK Forex is also regulated by the U.K. Financial Conduct Authority (FCA), and HYCM is also regulated by the Cyprus Securities and Exchange Commission (CySEC).

Due to the fact that the forex market is unregulated and decentralized, the dynamics of the market differ considerably from other markets such as the stock market, for example.

One of the main reasons the majority of new traders in the forex market fail within a short period of time is that they lack the preparation needed to trade profitably. Educational resources for new traders are often provided by many forex brokers.

One of the best ways to get familiar with the forex market is to use a demo account. Most brokers offer their clients a free demo account so you can operate with virtual currency without putting your own funds at risk until you’re ready to open a live account.

Step 1: Consider Your Needs

Your needs as a forex trader depend in large part on the amount of trading experience you have and your knowledge of the forex market. If you are an experienced trader and are familiar with technical and fundamental analysis, you can look for a broker that offers you the resources you require and are familiar with.

If you have limited or no trading experience, you would probably be better off selecting a broker that offers educational resources to increase your knowledge of the forex market and trading in general.

Regardless of how much experience you may have, open a demo account first to try out any broker you might choose. In addition to providing you with insight into a broker’s trading platform, a demo account can give you an idea of the broker’s dealer spreads and the response time it takes to fill your orders.

Besides their own proprietary trading platforms, the majority of forex brokers offer the MetaTrader4 and MetaTrader5 trading platforms by MetaQuotes. MetaTrader4 and 5’s state-of-the-art features have become the standard in the industry.

After evaluating the different options offered by each broker that you require, you can then choose the best forex broker for your needs.

Step 2: Pick a Broker

Broker Best For Commissions Account Minimum Choose your platform
FOREX.com
  • Forex traders located in the United States
  • MetaTrader 4 users
  • Beginner forex traders
  • Active forex traders
Spreads start as low as $1 But vary based on trading volume $250
Get started securely through FOREX.com’s website
1 Minute Review

One of the few forex brokers to provide MetaTrader support for U.S. clients, Forex.com has an impressive array of pairs to trade and three different accounts to choose from. Its educational materials are spot-on, but the margin requirements aren’t as accommodating as some competing forex brokers.

Pros
  • MetaTrader and NinjaTrader support
  • Lots of education materials
  • Direct market access accounts
  • Over 80 forex pairs to trade
Cons
  • Maximum leverage on only three pairs
  • No MetaTrader on spread or DMA accounts
Current Promotion

Interactive Brokers
  • Forex traders
  • Professional traders
  • Frequent traders with a thirst for different order types (63!)
$0.005 per share minimum $1 and maximum 0.5% of trade value; volume discount available $0 for cash account, or a margin account with $2,000
Get started securely through Interactive Brokers’s website
1 Minute Review

If you consider yourself a sure-footed professional trader, Interactive Brokers might be a major possibility for you, particularly if you’re adept at navigating tricky trading platforms (can you say 124 option indicators?) or have done more than just dipped your toe a “coupla times” into the complex world of international markets.

Pros
  • If you’re into trading on margin, you’re in luck. Interactive Brokers offers the lowest rates in the industry.
  • Low pay-per-share commissions on stock trades (up to 1,000 shares) and on options trades (up to 20 contracts)
  • Vast order types options for professional traders
Cons
  • Interactive Brokers charges account fees (including annual, transfer, closing an inactivity fees) and offers an extremely complex trading platform
Current Promotion

Lower minimum activity requirements ($3/month) and opening account minimum requirement ($3,000) for clients 25 and younger.

When selecting a forex broker, whether based in Hong Kong or elsewhere, several factors that could affect a trader’s profitability should be considered before depositing any funds with the broker. Some of the more important elements can be seen below.

Regulation

The safety of your funds is important, so choose a broker that is duly regulated in Hong Kong by the HKSF and/or by another reputable agency. Many brokers based in Hong Kong are regulated by the HKSF, but some are not.

Foreign brokers that accept clients from Hong Kong should have oversight by strict regulatory bodies, such as the UK’s Financial Conduct Authority (FCA) or Cyprus’ CySEC that enforces operations under the EU’s Markets in Financial Instruments Directive (MiFID). FOREX.com has a considerable presence in Hong Kong and is well regulated by the U.S. National Futures Association (NFA) and the Commodities Futures Trading Commission (CFTC).   

Trading Platform

While many online forex brokers offer their own proprietary trading platforms, most of them also offer the MetaTrader4 and MetaTrader5 platforms from MetaQuotes.

In addition to the ability to execute trades online, trading software should include a technical analysis package, a news feed and the ability to customize its interface. Some platforms also allow you to automate your trading plan to allow the software to trade for you.

In addition, a wealth of third-party developers market their programs for market signals and automated trading called “expert advisors” (EAs), which you can download and apply to your own trading account using MetaTrader.  

Market Maker or ECN

The two main types of structure used by forex brokers consist of either operating as an Electronic Communication Network (ECN) or as a market maker.

An ECN broker shows the best bid and offer rates available from a group of market makers. After locating the best quote, the ECN broker then fills your order at the best exchange rate. This tends to result in a very tight price, although most ECN brokers charge a small commission in addition to the bid/offer spread.

On the other hand, a broker that operates as a market maker fills your order by taking the other side of the trade after quoting a two-way dealing price or market. This may result in a conflict of interest if you trade successfully and the broker fails to offset its position with another market maker.

Dealer Spreads

Many brokers make money by taking advantage of the difference between the bid and offer market exchange rates, commonly known as the dealing spread.

If you’re an active trader, then that spread could make a considerable difference in your profitability, so having a broker that offers narrow dealing spreads could save you a lot of money in the long run.

Margin and Leverage

Leverage tells you how much money you can control with a margin deposit, and margin is the amount of money a broker sets aside from your deposited funds to let you hold a trading position.

For example, a leverage ratio of 100:1 means that for every dollar you put up as margin, you can control a position of $100. If you put up $1,000, then you can control a position worth $100,000.

Although using leverage can make profitable trades pay out significantly more money, losses also get magnified. This means that a losing position can put your entire account (or more) at risk if not managed properly.

Demo Account

Most online forex brokers offer a risk-free demo account you can use to try their services and evaluate their trading platforms. Trading in a free demo account can allow you to sharpen your skills as a trader before you begin trading in a live funded account.

Customer Service

Being able to contact your broker can be very important if you have a question about a trade or have made a mistake. A competent broker’s customer service department will allow client contact through a live chat feature on its trading platform via telephone or with a quick-response email.

Educational Resources

Brokers’ educational resources give traders with limited experience a way to educate themselves about the forex market and trading in general. Many brokers offer articles, videos, webcasts and market analysis to help novice traders expand their horizons.

Step 3: Open an Account and Start Trading

After evaluating several online brokerages’ services and trading in their demo accounts, you should have a better idea of which broker will suit you best. If you have little or no experience,  seek a broker that offers educational material to learn more about trading. Trading small positions such as micro-lots is recommended until your trading plan proves successful.

Keep in mind that your results in a demo account may be considerably different than in a live account. The main reason for this is that many people react differently to making and losing real money versus a demo account.

Before you risk your money, make sure you have a plan of action. Formulate an easy-to-follow trading plan that incorporates sound money management principles. This could make the difference between success as a trader or ending your trading career early because you lost all your risk capital.

Final Thoughts

To a certain degree, trading the forex market in Hong Kong depends on your choice of forex broker as a trading partner. Remember, not all forex brokerages are created equal, so make sure to carefully consider your needs before opening an account.

Also, the best online brokerage should have a good reputation and be duly regulated by the HKSF and/or another reputable regulatory agency so you feel secure depositing your money.

Ready to start trading forex? Take a look at Benzinga’s guides to how to start trading forex, best forex brokers, best forex trading courses and best forex books.

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