What is FX? Understand the Foreign Exchange Market and What Vietnamese Investors Need to Know

What Is the FX Market?

FX (Foreign Exchange - foreign currency) is the global market where different currencies are traded. It is not a centralized exchange like the stock market but a decentralized (OTC) network connecting banks, brokerage firms, and investors worldwide.

The scale and liquidity of FX are unmatched. According to data from the Bank for International Settlements, the average daily trading volume exceeds $6.6 trillion. This is the most liquid market globally, making it resistant to manipulation and generally stable.

Participants in the FX Market

Initially, FX was only accessible to large organizations: central banks, import-export companies, investment funds. They use foreign exchange to:

• Hedge against exchange rate volatility in international contracts
• Protect assets from inflation
• Store value during political instability

However, as individual investment demand increased and international trade developed, FX gradually became a tool for diversification of investment portfolios. Although retail trading volume remains lower than that of institutions, the market’s attractiveness is drawing more and more participants.

FX Trading in Vietnam: Legal Issues

Current status: Vietnam has not legalized FX trading through domestic platforms. The government only licenses foreign exchange trading for banks to manage foreign reserves. Therefore, there are no licensed FX exchanges in Vietnam.

But is FX trading illegal? According to current regulations, Vietnamese individuals are fully permitted to engage in foreign exchange trading for investment purposes. What is prohibited is establishing or operating an FX trading platform within Vietnam.

Thus, if you want to participate in this market, you need to use international trading platforms licensed by regulatory authorities in countries that permit FX trading.

Most Traded Currency Pairs

According to the Bank for International Settlements survey in April 2019, the top 10 most traded currency pairs are:

Major Economic News Impacting FX

1. Central Bank Interest Rate Decisions

Interest rates are considered the “price of money.” When rates rise, the currency appreciates, and vice versa. This is the most significant information directly affecting currency pair fluctuations.

2. GDP (Gross Domestic Product)

When GDP falls below expectations, the currency tends to depreciate. Conversely, exceeding expectations can lead to currency appreciation.

3. CPI and Inflation

These two indicators indirectly reflect the value of money through purchasing power. High inflation often leads to higher interest rates.

4. Unemployment Rate

Used by central banks to decide monetary policy. The two key figures are the US ADP and NFP reports, released monthly.

5. FOMC Meeting (U.S. Federal Open Market Committee)

Monthly meetings to set interest rates and release economic outlooks. These decisions can cause significant market volatility.

FX Trading Hours

The FX market operates 24 hours a day, 5 days a week, thanks to trading sessions across different time zones:

Each trading session has different volatility levels for various currency pairs. For example, AUD tends to be more volatile when Sydney opens, while European pairs are more active when London begins trading.

Should You Trade FX?

Advantages:

• The most liquid market worldwide
• Can trade 24/5 to suit Vietnamese schedules
• Strong price movements create profit opportunities

Risks to consider:

• Legal status in Vietnam remains unclear and may change
• High market volatility can lead to significant losses without proper strategies
• Need to choose reputable international brokers to avoid scams

Advice: If you decide to participate, ensure you select a broker licensed by reputable foreign regulatory agencies, with a long-standing reputation and good support services. Also, thoroughly learn about risk management before starting live trading.