Fact: Forex trading is haram.
Okay, *some* types of forex trading are allowed in a macroeconomic, business operations way. But the one you have in mind? The one where you, a solo trader, make a lot of money by ‘working’ a few hours a day – yeah that one is clear-cut haram.
But! If you still want to trade for a living, there is a way to do it in a Syariah-compliant way. You can do FCPO trading.
But wait, let’s go back a bit. What is FCPO? And how do you trade FCPO?
FCPO = Crude Palm Oil Futures = One type of Derivatives
Note: I learned much of the information here from Bursa Academy’s course, The Fundamental & Technical Aspects of Derivatives Markets. Go take it, it’s a great way to learn and amazingly, FREE! They even give you an e-certificate you can brag about 🙂
FCPO stands for Crude Palm Oil Futures – one of the derivatives offered in Bursa Malaysia. A type of Futures contract, it is mainly used by (1) hedgers to offset risks, and (2) speculators (read as traders aka most of you reading this) to potentially profit from.
The Many Types of Derivatives
There are many types of derivatives – some that you can dabble in with proper risk management, and others that you should probably… avoid. In short:
- Futures and Options Contracts – also known as Exchange-traded Derivatives (ETD) – go ahead. It’s regulated, the market is liquid, and financial safeguards are in place. FCPO belong under this category
- Forwards, Swaps, Contracts for Difference (CFDs), etc – also known as Over-the-counter Derivatives (OTC) – try to avoid. They’re less transparent and susceptible to counterparty default risk
If by this section of the article, you think to yourself, whoa that’s a lot of new terms, this is hard – it really isn’t, you’re just not familiar yet.
It is true that Futures and Options Contracts can be considered advanced-level financial knowledge for Malaysians, but it’s nothing that you can’t learn 🙂
Derivatives = Just a step above stocks
If you know about the stock market, then Derivatives are just one step above. It’s the same buying and selling, but with an added element of time: the value of a Futures and Options Contract is linked to the expected future price movement of an underlying asset.
The underlying asset could be:
- Commodities (like Crude Palm Oil)
- Interest rates
- Indices (like KLCI)
You can trade all of the above in Bursa Malaysia, but I recommend starting with trading FCPO, simply because (1) FCPO is the most active derivative in Malaysia, therefore (2) there are more resources and communities to learn from!
How to Trade FCPO in Malaysia in 4 Steps (The Safe Way)
Here’s how to trade FCPO the safe way. There are only 4(+1) steps, starting with..
Step 1: Be financially stable (Do not skip this step)
There is no sugarcoating it – trading is risky. Most people will take time – often years – before learning to profit consistently.
Therefore, before you even consider trading, do make sure you are somewhat financially stable. It’s a good idea to have 6-12 months of emergency savings AND clear off your high-interest debts (credit cards, personal loans etc) first.
This also goes without saying but DO NOT borrow money to trade FCPO or any other asset class or instrument.
Done with this step? Go on to the next. Stuck at this step? Go to Optional Step: Join Futures Trading Apprenticeship Programme (FTAP) section below
Step 2: Open an account
To trade FCPO in Malaysia, you must open an account with a regulated futures broker. The regulated part is non-negotiable – imagine depositing funds, making money then being unable to withdraw!
In Malaysia, many regulated brokers allow you to trade derivatives. You can start the account opening process through Bursa Malaysia, too – simply select Derivatives, choose the broker(s) you prefer, drop your contact details and someone will contact you to assist with account opening.
Step 3: Learn about Derivatives market, FCPO basics and trading strategies
I have shared this earlier, but worth sharing again – I recommend starting with The Fundamental & Technical Aspects of Derivatives Markets course. You will learn:
- What is going long/ going short
- Contract specifications for FCPO (as well as other derivatives)
- What are margin calls, notional value, hedge ratio
- How to calculate your FCPO profit (or loss)
- Factors that affect palm oil prices
- Spread trading opportunities
- And more
After you’ve done that, go ahead and browse other webinars offered in Bursa Academy website. Again, they are completely FREE. For starters, you may be interested in these:
- How to Become a Consistent FCPO Trader
- How to Manage Your Risk To Be Successful in FCPO Trading
- 5 Techniques in Forecasting the FCPO Market
- Enhancing Your Portfolio Return Using FKLI & FCPO
- Understand The Different Types of Trading Styles in Futures
- Trading for A Living: 3 Categories of Professional Traders
- (there are more)
This may look like a lot of things to learn but you can go through them on a weekend. Each course/recorded webinar session takes just 1~ hour to complete, depending on your speed.
Now that you’re ready, you can trade FCPO for real and (hopefully) profit from it!
Step 4: Deposit your funds and start trading FCPO!
Lastly, simply follow the instructions given by the account of your choice to fund your account and you can start trading FCPO!
How much $$$ do you need to trade FCPO?
You don’t need a large capital – around RM10,000 is good enough to start. As Futures are leveraged financial instrument, you only need around 3-15% of notional value of the contract. With RM9000 in funds, you may get the exposure of RM90,000 worth of Crude Palm Oil Futures contracts.
Let me put that in another way – thanks to leverage, you can enhance your returns by 20x.
Additionally, according to a practitioner, you can even trade FCPO from as low as RM1500! (Note: this is a cost-effective trading strategy called spread trading).
Optional Step: Join the Futures Trading Apprenticeship Programme (FTAP)
How would you like to change careers and become a self-employed trader or join a proprietary trading firm?
No, seriously, this is your opportunity. You can apply to join Futures Trading Apprenticeship Programme (FTAP) organised by Bursa Malaysia Derivatives and supported by the Capital Market Development Fund (CMDF). In this programme, you don’t just learn how to trade FCPO, but also how to trade options in Malaysia!
How it works is:
- You submit an application for Futures Trading Apprenticeship Programme (before 6 October). You don’t even need prior trading experience – just need to be passionate in the capital markets!
- If accepted, you’ll first attend 2 days of Classroom Training on 4 & 5 November 2023 (Sat/Sun) – Learn theory
- Then, you’ll go through 10 days of Bursa Trading Arcade on 6-17 November 2023 (Mon-Fri) – Practice trading all day long under the guidance of seasoned professional traders hand-picked by Bursa Malaysia!
Limited to 30 pax, the 2-week immersive learning programme costs RM610 (subsidised fee). This is an amazing price – I’ve been told a similar training programme would set you back RM20,000.
Find out the application requirements, modules, trainers and other info in the Futures Trading Apprenticeship Programme website. Refer to the application steps below and remember to submit your application latest by 6 Oct 2023.
Opinion: Learning derivatives is useful for traders and investors, but also for general knowledge
Traders and investors should definitely learn about the benefits of exploring derivatives, especially if you’re looking for:
- Leveraged trading – Get greater exposure to the underlying asset at a fraction of the total contract value
- Ability to short sell – When there is a bearish market outlook, a trader can sell a FCPO contract first to initiate a short position and buy back later at a lower price to close out the position. This allows traders the flexibility to benefit from both a bull and a bear market, depending on one’s strategy
- Time-saving – FCPO (and derivatives) are less time consuming than screening individual stocks to invest in
- Diversification – Derivatives is alternative asset class to diversify your investment portfolio
However, this is my opinion, but I would recommend learning for learning’s sake even if you don’t plan to trade FCPO or other derivatives.
Here are some things I have personally learned:
- You’ve driven past huge palm oil plantations; you know palm oil is a big part of the Malaysian economy. What do you think affects the price of palm oil? Learn FCPO and you’ll find out
- It’s not only traders who buy and sell derivatives! You should learn about the hedgers – the people who buys/sells derivatives as part of a business risk management strategy
- Futures and derivatives gives you context to understand important world news. Remember during the pandemic when oil futures prices hit ZERO, because all flights and tourism are effectively dead?
If any of you have used your knowledge of derivatives in real-life examples, I’d love to hear it. Please share in the comments 🙂
Obligatory disclaimer and Good luck in your FCPO trading journey
If you came into this article wanting to learn about trading FCPO, I hope you get more than that. At the very least, you should know that yes, trading derivatives is a legitimate way to make money, and trading FCPO is Syariah-compliant.
Here are some disclaimers before you continue your FCPO trading journey:
Trading is risky
Trading comes with risks, and you should be equipped with knowledge to trade derivatives as safely as possible. Do not skip Step 0 – to be financially stable first. I have actually heard of people quitting their jobs to trade for a living using money they don’t have, even taking out loans! This is a bad idea.
Join communities, but careful of gurus/herd behaviour
While joining derivatives trading communities is a good idea, you should know you should not outsource your trading decisions – this is a quick way to lose money. Do learn how to identify overconfident self-appointed gurus, while resisting the temptation to blindly follow a buy/sell recommendation.
Keep learning and practicing
Beyond this article, you can find resources to learn and improve your trading skills in Bursa Academy and information-sharing sessions organised by regulated futures brokers.
As a last note, if you’re keen on trading derivatives and options as a career, then do apply for Bursa Malaysia Futures Trading Apprenticeship Programme before 6 October 2023. With trading skills you learned in the programme, you can make back the programme fee of RM610 as soon as a few days. All the best in your application!