ARTICLE: Understanding the Nature of the Forex Market - What is Fx and Should You Participate?

The foreign exchange market has existed for a long time, closely linked to international trade activities, but many individual investors still have basic questions: What is Fx? What is the nature of the foreign exchange market? And should I participate in this field or not? For developing financial markets like Vietnam, forex remains a relatively new area, causing many investors to hesitate in making decisions.

This article will help you understand the forex market from basic aspects to decision-making when participating, providing a comprehensive view of one of the largest financial markets globally.

1. What is Fx? Understanding the Nature of the Foreign Exchange Market

Basic Definition of Fx and the Foreign Exchange Market

Fx or forex (abbreviation of Foreign Exchange) simply refers to the market where different currencies are traded. This market is global in nature, not centered at a specific trading floor like stock markets. Therefore, to participate in forex trading, investors must go through licensed brokerage firms, trading via OTC (Over The Counter) systems — a decentralized trading method.

Market Liquidity and Scale of Forex

The forex market is the most liquid market in the world, with an average daily trading volume reaching 6.6 trillion USD (according to 2020 statistics). Thanks to its enormous scale and large number of participants, the forex market cannot be manipulated by any organization, creating fairness for all traders.

Main Participants in the Forex Market

Previously, the forex market was mainly the playground of large banks, financial institutions, and import-export companies. They used forex to hedge against exchange rate fluctuations in international contracts, protect against inflation, and reserve value during political instability.

As international trade increases and individual investors seek diverse investment channels, forex has become an option to consider. Although the trading volume of individual investors is still small compared to financial organizations, the attractiveness of liquidity and market volatility is gradually attracting more individuals to participate.

2. Legal Situation: Is Forex Trading Legal in Vietnam?

Current Legal Environment

In Vietnam, the government still tightly controls foreign exchange reserves, so forex trading is only permitted for banks. To date, there are no legal forex trading platforms in Vietnam. The government does not license the establishment of forex trading platforms; however, this does not mean that forex trading is illegal.

Rights of Individual Investors

Individual investors are fully allowed to conduct forex trading for investment purposes. Since there are no domestic forex platforms in Vietnam, Vietnamese investors can trade through international licensed platforms authorized in countries that permit forex activities.

Important note: Trading through a brokerage “licensed by Vietnam” is illegal, as Vietnam does not license any forex brokerage companies. To be safe, choose reputable international brokers licensed by authorities in countries that permit forex trading.

3. Most Traded Currency Pairs in the Forex Market

According to a survey by the Bank for International Settlements (BIS) in April 2019, the currency pair EUR/USD leads with over 24% of trading volume. Other popular currency pairs include USD/JPY, GBP/USD, and many others.

Top 10 Most Traded Currency Pairs

4. Procedure to Open a Forex Trading Account

Vietnam is attracting many international forex brokerage firms. However, among hundreds of thousands of online trading platforms, not all are reputable. To avoid risks, evaluate a broker based on these criteria:

• Reputation and security: Check licenses from regulatory agencies
• Trading costs: Compare commissions, spreads, and other fees
• Deposit and withdrawal: Payment methods, processing speed
• Trading platform: Features, stability, analytical tools
• Order execution speed: Latency and order reliability
• Customer support: Service quality, multilingual support

Steps to Open an Account

Step 1: Choose a reputable broker and create a demo or real account (demo or live)

Step 2: Select the market you want to trade (e.g., EUR/USD, gold, oil)

Step 3: Open a buy (long) or sell (short) position based on your market forecast

Step 4: Set position size, take profit (Take Profit), and stop loss (Stop Loss)

Step 5: Confirm and execute the trade

5. Tax Issues in Forex Trading in Vietnam

According to current Vietnamese law, forex trading is an unlicensed activity. No forex trading platforms are permitted in Vietnam, and individuals or organizations conducting forex transactions contrary to regulations.

Currently, Vietnam has no policy allowing forex trading, so there is no issue of income tax from this activity. However, note that this is a legally undefined area, and participating in forex trading carries high legal risks.

6. Important Economic News Affecting the Forex Market

Each currency is influenced by its own factors, but five key economic indicators impact all currency pairs:

1. Central Bank Interest Rate Decisions
Interest rates are considered the price of money. When rates rise, the currency’s value increases, and vice versa. This is the most important economic information with immediate impact on currency pairs.

2. Gross Domestic Product (GDP)
GDP below forecast tends to decrease currency value, while exceeding expectations usually increases it.

3. Consumer Price Index (CPI) and Inflation
This measures the indirect value of money through purchasing power. High CPI or inflation prompts central banks to raise interest rates to control it.

4. Unemployment Rate
Employment data indirectly affects interest rate decisions. Important indicators include US ADP and NFP, released monthly.

5. Announcements from the US Federal Open Market Committee (FOMC)
FOMC meets monthly to set interest rates and provide economic outlooks. These announcements can cause significant market volatility.

7. Forex Trading Hours

The forex market operates 24 hours a day, 5 days a week, thanks to the connection between trading centers in different time zones:

Different currency pairs have varying volatility across these sessions. For example, AUD is more active when Sydney opens, while European pairs are more volatile during London hours. The advantage of this system is that you can trade different currency pairs almost 24 hours/day, 5 days/week through a single platform.

8. Should You Participate in Forex Trading? - Considerations

Legal Issues

The main factor deciding whether you should participate in forex in Vietnam is the legal aspect. As analyzed, forex trading in Vietnam still faces many undefined legal issues. Any forex platform established in Vietnam is definitely illegal, but trading for investment purposes in countries that permit such activities is not a violation.

Opportunities and Risks

Forex is the largest financial market in the world with high liquidity, making it an attractive playground with profit opportunities. However, it also involves significant risks:

• Market risk: Price volatility can lead to substantial losses
• Legal risk: Unclear regulations in Vietnam
• Broker risk: Choosing the wrong company can lead to fraud

Recommendations

If you decide to join this vibrant market, the most important thing is to select a reputable, legally licensed international broker in countries that permit forex trading. Take time to research, compare options, and understand the risks before starting. Especially, only use capital you can afford to lose, and always apply strict risk management in every trade.