What is Forex Foreign Exchange? What Vietnamese Investors Need to Know

Market Overview of the Foreign Exchange Market

The foreign exchange market (forex) is not a new concept; however, for the Vietnamese individual investor community, it still holds many mysteries. What is forex? Should you participate in this market or not? These are questions many Vietnamese investors are asking themselves.

Unlike stock markets that operate at a specific location, the foreign exchange market operates globally with a decentralized OTC (Over-the-counter) system. It is the most liquid market in the world, with an average daily trading volume reaching 6.6 trillion USD (according to 2020 statistics).

What Is the Nature and Scale of the Forex Market?

Main Features

What is forex in essence? It is a market for trading currency pairs worldwide, where financial institutions, central banks, import-export companies, and individual investors participate to:

• Hedge against exchange rate fluctuations
• Hedge value amid economic instability
• Seek profitable investment opportunities
• Diversify investment portfolios

The extremely high liquidity of the forex market is a key factor preventing price manipulation. With a huge number of participants, no one can control or significantly influence the overall market prices.

Market Participants

Initially, forex was an exclusive playground for large financial institutions and banks. But as international trade increased and the demand for diverse investments grew, individual investors gradually entered this market.

Although the trading volume of individuals is still very small compared to organizations, the attraction from liquidity and price volatility opportunities is increasingly drawing more individual investors.

Legal Status of Forex Trading in Vietnam

Current Regulations

In Vietnam, the government maintains strict control over foreign exchange reserves. Currently, only licensed banks are authorized to conduct forex transactions. The establishment of forex trading platforms in Vietnam has not yet been legally permitted.

This does not mean forex trading is illegal. Vietnamese individual investors are fully entitled to trade forex through licensed brokerage companies in countries where such activities are permitted.

Safe Approach

To participate in forex trading legally and safely, you need:

• To choose reputable international brokers licensed by competent regulatory authorities
• To avoid platforms claiming to be “licensed by Vietnam” (since that is definitely fake)
• To carefully verify registration and license information of the broker

Most Commonly Traded Currency Pairs

According to the Bank for International Settlements (BIS) report from April 2019, here are the top currency pairs with the highest trading volumes:

Top 10 Major Currency Pairs

Economic Factors Affecting the Forex Market

5 Major News Events

1. Central Bank Interest Rate Decisions

Interest rates are considered the “price” of a currency. Raising interest rates = currency appreciation, lowering interest rates = currency depreciation. This is the most immediate and powerful factor influencing currency pair prices.

2. Gross Domestic Product (GDP)

When GDP exceeds expectations, the currency tends to strengthen. Conversely, if GDP falls below forecasts, the currency weakens.

3. Consumer Price Index (CPI) and Inflation

These indices reflect the real value of money through purchasing power. High CPI leads to increased pressure for central banks to raise interest rates.

4. Unemployment Rate

Higher employment → higher interest rates. Central banks use this indicator to balance inflation and growth. US ADP and NFP reports are released monthly and are highly watched.

5. US Federal Open Market Committee (FOMC) Announcements

Each month, the FOMC meets to set interest rates and provide economic outlooks. These announcements can cause significant market volatility. For example, on March 18, 2015, the EUR/USD pair surged 400 pips within minutes after a negative outlook on USD.

Optimal Forex Trading Hours

The forex market operates 24 hours a day, 5 days a week. However, volatility varies depending on which trading session is active:

Each trading session causes different volatility for currency pairs. For example, when Sydney opens → AUD moves strongly; London opens → EUR/GBP moves; New York opens → USD moves.

Risks to Consider Before Trading Forex

( Broker Evaluation Criteria

If you decide to trade forex, choosing a trustworthy broker is the most important decision:

• Reputation and security: Check licenses from regulatory authorities
• Trading costs: Compare spreads and commissions
• Deposit/withdrawal process: Ensure quick and secure transactions
• Trading platform: User-friendly, full analysis tools
• Order execution speed: No slippage, fast processing
• Customer support: Good service, Vietnamese language support

) Basic Account Opening Process

Once you select a reputable broker, the account opening process usually includes:

1. Registering an account (can choose demo or real account)
2. Verifying identity according to KYC requirements
3. Depositing funds into the account
4. Choosing trading instruments (forex, commodities, indices, etc.)
5. Placing buy or sell orders, setting profit targets and stop-loss levels

Tax Issues for Forex Trading in Vietnam

Current Situation

According to current Vietnamese law ###Foreign Exchange Ordinance(, forex trading on platforms registered in Vietnam is considered illegal.

However, since forex is not yet legally permitted domestically, there are no specific tax policies for these transactions at present.

) Important Notes

This is an area not yet clearly regulated. Conducting forex transactions on foreign platforms still carries legal risks. Investors should carefully consider before participating.

Should You Trade Forex?

( Advantages

Forex is the largest financial market in the world with:

• Extremely high liquidity, easy entry/exit
• Strong price volatility, many profit opportunities
• Operating 24/5, flexible timing
• Rich economic analysis tools

) Challenges

• Legal risks in Vietnam are not clearly defined
• High volatility = high risk of significant losses
• Requires high knowledge and skills
• Easy to encounter scam platforms if not careful

Conclusion

If you decide to trade forex, the most important thing is to choose a reputable, legally licensed partner in countries where such activities are permitted. Additionally, learn thoroughly, control risks tightly, and never invest money you cannot afford to lose.