The short answer to this question is yes, but only with a registered and approved financial institution. The official ruling is that you are only allowed to trade currency legally in Malaysia with licensed institutions, of which there are several. There are some that say that this rule only applies to physical currency and retail Forex Trading, especially online, does not fall into that category because online, you trade theoretical currency. That is why this is considered a tricky question requiring explanation and not just a simple yes or no.
The easiest way to trade Forex in Malaysia legally is to use one of the approved institutions, and maintain an Islamic account. Investing overseas is legal in Malaysia and there are many opinions that say that retail forex trading with an offshore brokerage can be easily considered foreign investment. The main issues that the nation has with Forex is that they are a developing country that wants to control the value of their currency to some degree. Since most Forex trading even in Malaysia does not involve their own currency, they tend to overlook the many ways that Forex can be traded using other currencies.
The idea here is that the laws are written in favor of the government being able to act if they see fit. Meaning, that it is extremely unlikely that you will be arrested in Malaysia for trading forex because there are ways to do it legally but the government reserves the right to have some control over what is happening. The law does strictly prohibit Forex trading with the funds of others and soliciting funds to trade. This is pretty clear and will get anyone who transgresses these regulations into a heap of trouble.
There are many laws on the books that people do not comply with and they are not even aware of the law in the first place. This means that most of the time, you can go on your merry way and not have any problems with the law, but the minute you do something that crosses the authorities or brings your offenses to the attention of the authorities, you can be penalized for everything that you are doing wrong, even the ones you didn't know about.
Forex trading in Malaysia is a pretty good example. It is likely that if you are trading your own funds, not bothering anyone and not being very public about it, nothing will happen to you at all. If you do something that angers the authorities, they can then come after you for every little law that you are breaking including this one. Since the law is very grey here, there is a risk of getting into trouble with the government, if you are trading with a brokerage that is not on the list of licensed institutions and then risking everything you do being examined closely as well.
That being said, most people who are trading from Malaysia with their own funds and an overseas broker will never have a problem. In several OIC nations, forex trading using a regular trading account is outlawed. In the Asian region, countries like Malaysia and Indonesia which are Islamic, only allow trading through an Islamic account.
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