Foreign Exchange Market: From Fundamentals to Legal Issues in Vietnam

What Is Forex? Understanding How It Works

Forex is not a new concept worldwide, but in Vietnam, it remains a field that many investors find confusing. The forex market — or foreign exchange market — has existed for centuries, associated with international trade activities and the need to exchange currencies between countries.

Unlike stock markets with centralized exchanges, the forex market is a decentralized system — OTC. There is no specific physical location where all transactions occur. Instead, investors participate through brokerage firms, connecting to a global trading network.

The size of the forex market is enormous — with an average daily trading volume of 6.6 trillion USD (according to 2020 statistics), making it the most liquid market in the world. With such a large number of participants, forex cannot be manipulated by any organization.

Players in the Forex Game

Initially, this market was exclusive to large financial institutions — central banks, import-export companies, international business entities. They used forex as a risk management tool, to protect themselves from sudden exchange rate fluctuations in international contracts, or to store value during political instability.

However, as international trade activities increased and individual investors’ diversification needs grew, forex gradually became a viable option for retail investors. Although their trading volume is still small compared to organizations, the market’s appeal — high liquidity, volatility that can generate profits — is gradually attracting more participants.

Legal Status: Is Forex Trading in Vietnam Illegal?

This is a question that most Vietnamese investors are concerned about. Currently, Vietnam maintains strict control over foreign exchange reserves, and only banking institutions are permitted to conduct legal forex transactions.

In terms of official business, forex trading platforms in Vietnam have not yet been legalized. The government does not license any company to establish a forex platform within Vietnamese territory. This means you will not find any officially licensed forex trading platforms authorized by Vietnam.

However, the fact that the government does not allow the establishment of forex trading platforms does not mean forex trading is illegal. Individuals are fully entitled to participate in forex trading for investment purposes. The key point here is: you must trade through internationally licensed brokers in countries that permit such activities — not any company claiming to be “licensed by Vietnam,” as that would be illegal.

To participate safely in this market, you need to choose reputable international brokers licensed by authorities such as securities commissions or financial supervisory organizations in countries like Australia, the UK, or other countries that allow forex operations.

Most Common Currency Pairs on Trading Platforms

Not all currency pairs are traded with the same volume. According to the Bank for International Settlements (BIS) in 2019, some currency pairs dominate clearly.

EUR/USD leads the list with about 24% of daily trading volume. This pair is heavily influenced by the interest rate decisions of the European Central Bank (ECB) and the Federal Reserve (FED).

Next is USD/JPY with 13.2% volume, affected by the interest rate decisions of the Bank of Japan (BoJ) and the FED.

GBP/USD accounts for 9.6%, depending on the economic growth rates of the UK and the US, along with interest rate decisions from the Bank of England (BoE) and the FED.

Other pairs such as AUD/USD (5.4%), USD/CAD (4.4%), USD/CNY (4.1%), USD/CHF (3.5%), USD/HKD (3.3%), EUR/GBP (2.0%), and USD/KRW (1.9%) also have significant presence in the market, each influenced by different factors.

Major Economic News That Impact Forex Markets

Forex trading is not just a price game; it also involves closely monitoring economic events. There are five main types of news that influence the entire market:

Interest rate decisions from central banks: Interest rates are considered the price of a currency. When rates rise, the currency’s value increases, and vice versa. This is the most important information, with immediate impact.

Gross Domestic Product (GDP): When GDP exceeds expectations, the currency tends to appreciate. When GDP falls short of forecasts, the currency depreciates.

Consumer Price Index (CPI) and inflation: These indicators indirectly reflect the real value of the currency. High inflation often leads to interest rate hikes by central banks.

Unemployment rate: This helps central banks assess economic health. Low unemployment can lead to upward pressure on interest rates.

FOMC (Federal Open Market Committee) decisions: Announcements from the FOMC can cause significant volatility. For example, on March 18, 2015, the EUR/USD pair surged 400 pips within minutes after the FOMC expressed a negative outlook on the USD.

Global Trading Hours

The forex market operates 24 hours a day, 5 days a week, but volatility levels vary. Each major trading center — Sydney, Tokyo, London, and New York — has its own trading hours.

Sydney opens from 4:00 - 13:00 (m winter) or 5:00 - 14:00 (m summer). Tokyo operates from 6:00 - 15:00 year-round. London opens from 15:00 - 0:00 (m winter) or 14:00 - 23:00 (m summer). New York operates from 20:00 - 5:00 (+1 day) (m winter) or 19:00 - 4:00 (+1 day) (m summer).

When each trading center is active, currency pairs related to that region tend to have higher volatility. For example, AUD tends to fluctuate more when Sydney opens, while European pairs are more active during London hours.

Should You Participate in Forex Trading?

This question does not have a single answer suitable for everyone. Forex is indeed the largest and most liquid financial market, offering many opportunities. However, it also involves significant risks.

First, you need to understand the legal aspect. Forex trading in Vietnam remains in a legal gray area — not explicitly banned, but not encouraged either. If you decide to participate, make sure to use internationally licensed brokers, not those claiming to be licensed by Vietnam.

Second, you must be prepared for volatility. Forex is not a place to invest money and forget about it. Currency pairs can move sharply, especially when important economic news is released. You need analytical skills, economic knowledge, and risk management abilities.

Finally, start small. If you want to test the waters, many brokers offer demo accounts for practice without risking real money. When you feel confident, you can deposit a small amount and begin live trading. Always remember: money can be lost, so only invest what you can afford to lose.