What is Forex? Everything Vietnamese Investors Need to Know About the Foreign Exchange Market

The Foreign Exchange Market Is the Largest Financial Playground in the World

When it comes to global investment opportunities, the foreign exchange market cannot be overlooked — an enormous trading platform with an average daily trading volume of up to 6.6 trillion USD (according to 2020 statistics). What is Forex exactly? It is a decentralized market where currencies are bought and sold, without a centralized exchange like stock markets, operating OTC (over-the-counter) worldwide.

A prominent feature of forex is what — the foreign exchange market has the highest liquidity in the world, causing prices to fluctuate constantly and preventing artificial manipulation. Due to its enormous scale, individual investors today also have the opportunity to participate in a market once reserved for large financial institutions.

Who Are the Players in the Forex Arena?

Initially, the foreign exchange market was only for central banks, import-export companies, and financial institutions to hedge against currency fluctuations. However, as investment demand grew, individual investors gradually entered this market.

Their goal is to diversify their portfolios and leverage the high liquidity of the market to earn profits. Although the trading volume of individual investors is still modest compared to organizations, the appeal of volatility and profit opportunities continuously attracts new traders.

The Most Commonly Traded Currency Pairs

Not all currency pairs are traded with the same intensity. According to the Bank for International Settlements (BIS) survey in 2019, the three most favored pairs are:

EUR/USD leading with over 24% of daily trading volume, heavily influenced by ECB and FED interest rate decisions. Next is USD/JPY (13.2%) depending on the Bank of Japan’s decisions, and GBP/USD (9.6%) closely related to the economic situation in the UK and US.

Other widely traded pairs like AUD/USD, USD/CAD, USD/CNY are also actively traded, affected by factors such as mineral exports, oil prices, and economic growth in each country.

Legal Issues: How Is Forex Trading in Vietnam?

This is the most important question Vietnamese investors always wonder about. The answer is: Forex trading in Vietnam is not fully legalized at present.

Vietnam only licenses foreign exchange trading for banks, and does not permit the establishment of domestic Forex brokerages. However, this does not mean that forex trading is illegal. Individual investors are fully entitled to participate in Forex trading through internationally licensed brokerage firms in countries where such activities are permitted.

Important note: If you search for “Forex brokerage licensed by Vietnam,” it is definitely a scam, because Vietnam does not license any Forex brokerages. Always choose companies licensed by reputable international organizations such as ASIC (Australia), FCA (UK), or similar agencies.

Key Economic Factors Affecting Forex

To trade successfully, you need to monitor five main economic factors:

1. Central bank interest rate decisions — This is the most critical information. Higher interest rates increase the value of a currency, lower rates decrease it. Any change in interest rates causes immediate volatility.

2. GDP (Gross Domestic Product) — Higher-than-expected GDP usually boosts currency value, while lower-than-expected GDP causes it to fall.

3. CPI and inflation — These indicators indirectly influence through central bank interest rate decisions. High inflation often leads to higher interest rates.

4. Unemployment rate — More employment can lead to higher interest rates. Indicators like the US ADP and NFP are released monthly and closely watched by traders.

5. FOMC (Federal Open Market Committee) meetings — These monthly meetings can cause significant volatility. A typical example is March 18, 2015, when EUR/USD surged 400 pips within minutes after the meeting results were announced.

Optimal Trading Hours for Vietnamese Investors

The Forex market operates 24 hours a day, 5 days a week across four main trading sessions:

• Sydney: 4:00-13:00 (winter), 5:00-14:00 (summer)
• Tokyo: 6:00-15:00 (both seasons)
• London: 15:00-0:00 (winter), 14:00-23:00 (summer)
• New York: 20:00-5:00 (+1 day) (winter), 19:00-4:00 (+1 day) (summer)

Each trading session’s opening features more volatile currency pairs — AUD tends to be more active when Sydney opens, European pairs become more lively when London opens. This creates continuous trading opportunities for traders.

Steps to Open a Forex Trading Account

The process is quite simple:

Step 1: Choose a reputable international broker and create an account (you can opt for a demo account to practice)

Step 2: Decide on the currency pair you want to trade

Step 3: Decide whether to buy or sell based on your analysis

Step 4: Set the position size, take profit, and stop loss levels

Step 5: Confirm the trade

Note that you should compare brokers based on criteria such as reputation, security, trading costs, order execution speed, customer service, and trading platform.

Tax Issues and Risks to Consider

Currently, Vietnam does not have clear policies on Forex trading taxes because the market remains in a legal gray area. However, this should not be interpreted as a free pass to trade without risks.

Risks you need to consider include:

• Market volatility that can cause rapid losses
• The risk of choosing fraudulent brokers
• Lack of technical knowledge leading to poor investment decisions
• Unclear legal status that could change in the future

To Participate in Forex or Not?

The decision depends on your personal situation and investment goals. Forex is the market with the highest liquidity, high volatility, and great profit opportunities, but also significant risks.

If you decide to participate, you should:

• Choose brokers licensed legally in forex-friendly countries
• Start with small amounts to learn
• Use demo accounts for practice before trading with real money
• Continuously update your knowledge of economic factors affecting forex
• Strictly adhere to risk management discipline

The Forex market offers opportunities for those who prepare thoroughly and maintain discipline. The essential action is to understand the nature of what is Forex before stepping in.