Getting Started with Forex: What You Need to Know Before Entering the Market

What Is Forex? Why Do Many People Want to Learn About Forex?

Forex (short for Foreign Exchange) or the foreign exchange market is where different currencies are traded. This is not a new concept, but in recent years, more and more individuals are interested in this investment channel. Daily, the forex trading volume reaches up to 5.3 trillion USD, making this market the largest playground among financial markets.

But “forex” actually encompasses many concepts:

• Foreign currencies: USD, EUR, JPY…
• International payment tools: bank cards, bills of exchange, checks…
• Cryptocurrencies: Bitcoin, Ethereum…
• Other assets: gold, government bonds…

However, when it comes to Forex trading, most people refer to buying and selling currency pairs to capitalize on exchange rate fluctuations for profit.

Major Currency Pairs You Need to Know

Although there are over 30 currencies traded on the Forex market, only a few pairs account for up to 85% of trading value. These currency pairs are called major pairs and include:

Major currency pairs include EUR/USD, USD/JPY, GBP/USD, AUD/USD, USD/CHF, NZD/USD, and USD/CAD.

How It Works: Price Calculation in Forex

Each currency pair is written in the format XXX/YYY, for example EUR/USD. The currency on the left is called the base currency, and the currency on the right is called the quote currency.

If EUR/USD = 1.1500, it means 1 Euro can be exchanged for 1.1500 USD. When this rate fluctuates, you have the opportunity to profit from the price difference.

( Basic Concepts You Cannot Ignore

Leverage )Leverage(: A tool that allows you to trade larger amounts with less capital. For example, with 200:1 leverage, you only need 60 USD to control 12,000 USD. However, leverage is a double-edged sword—it can amplify both profits and losses.

Pip )Decimal Point###: The smallest change measurement in the exchange rate. If EUR/USD changes from 1.2000 to 1.2005, that is 5 pips.

Spread (Price Difference): The difference between the bid price (bid) and the offer price (offer). This is how brokers earn profits.

Margin (Margin Money): The amount you need to deposit into your account to maintain trading positions.

Lot (Lot): The number of currency units you buy or sell. Sizes include nano (100 units), micro (1,000 units), mini (10,000 units), or standard (100,000 units).

Long vs Short: Making Money in Both Rising and Falling Markets

A key difference in Forex is that you can profit not only when prices go up.

Long (Buy): You place a buy order when you expect the currency to appreciate. For example, buy EUR/USD at 1.1500 and sell at 1.2500, making a profit of 1,000 USD on 10,000 Euros.

Short (Sell): You short-sell when you expect the currency to depreciate. You sell first, then buy back at a lower price to profit from the difference.

This two-way market creates countless opportunities to make money.

Why Is Forex Attractive to Investors?

( Low Entry Barriers

You can start with just a few hundred thousand VND in margin. Compared to stocks, real estate, or commodities markets, Forex is much more accessible.

) Extremely Low Trading Costs

No management fees, brokerage fees, or traditional income taxes. Forex brokers only earn from the spread—the small difference between buy and sell prices.

( Market Operates 24/7

Unlike stocks that only open during business hours, Forex operates continuously. You can trade in the morning, noon, evening, or even while sleeping. This is perfect for those who want to trade Forex as a supplementary investment channel.

) No One Can Fully Manipulate the Market

With its enormous scale and large number of participants, even central banks cannot fully control Forex. This ensures higher fairness and transparency.

Power of Leverage

Leverage allows you to earn multiple times your margin. However, you need to manage risks carefully.

Different Types of Forex Trading

Spot Forex Market

The spot foreign exchange market – settlement within 2 business days. This is where banks and major financial institutions mainly trade. In Vietnam, this type is prohibited for retail investors.

Forex CFD ###Contract for Difference###

A contract between two parties on the price difference of an asset. 99% of Forex brokers in Vietnam operate under this model. You do not need to own the actual currency but only predict whether the price will go up or down.

Currency Futures

Futures contracts to exchange currencies on a specific future date at a predetermined price. Not common in Vietnam.

Currency Options

You predict whether the price will rise or fall relative to a fixed price at the end. If correct, profit; if wrong, lose money. Also not common in Vietnam.

( Currency ETFs

Funds that track the relative value of currencies against USD. Not popular in Vietnam.

Factors Affecting Forex Prices

) Central Bank Policies

Decisions on interest rates, quantitative easing, or tightening monetary policy by central banks deeply impact currency prices. For example, if the US Federal Reserve raises interest rates, the USD usually strengthens.

Economic News

Good economic reports ###GDP growth, lower unemployment### encourage investors to put capital in, increasing demand for that country’s currency.

Market Sentiment

Trader confidence and expectations are also very important. If everyone believes a currency will rise, they will buy it, which actually causes the increase.

Geopolitical Situations

Political events, elections, or conflicts can cause market volatility.

9 Steps to Start Forex Trading

( Step 1: Master Basic Terms

First, you need to understand the language of traders. Besides the concepts mentioned above, familiarize yourself with each term until it becomes instinctive.

) Step 2: Learn About Different Markets

Understand the differences between Spot, CFD, Futures, and Options. Most retail investors in Vietnam trade CFDs.

Step 3: Choose a Reputable Broker

The most important factor is that the broker has a license from international regulatory agencies like ASIC, FCA, or CySEC. Then compare trading fees, platform quality, customer service, and asset offerings.

Step 4: Open an Account

You will need to provide:

• ID card (front and back)
• Email and phone number
• Bank account information

Step 5: Select Currency Pairs to Trade

Consider:

• Economic outlook of the country: If you believe USD will weaken, sell USD.
• Trade balance: Export-heavy countries usually have stronger currencies.
• Political context: Elections or new policies can influence.

Step 6: Determine Margin Amount

A useful rule is to invest only 2% of your cash into a currency pair. For example, if you have 10,000 USD, only use 200 USD for a trade.

Step 7: Decide to Buy or Sell

Buy ###Long### if you believe the base currency will strengthen against the quote currency. Each pip increase will increase your profit.

Sell ###Short### if you believe the base currency will weaken. Each pip decrease will increase your profit.

( Step 8: Set Risk Management Orders

This is a very important step. Use:

• Stop Loss: An order to close the trade when the price drops to a certain level to minimize losses.
• Take Profit: An order to close the trade when the price rises to a certain level to lock in profits.

For example: EUR/USD is currently 1.11128. You predict it will rise to 1.2000 then fall. You set a sell limit order at 1.2000. When the price reaches it, the order executes automatically.

) Step 9: Monitor and Adjust

Don’t be overly emotional. Forex markets are highly volatile; you will see prices fluctuate frequently. The key is to stick to your strategy, keep learning, and improve your trading skills. Results will come over time.

Who Participates in the Forex Market?

Forex is not only for professional traders. Participants include:

• Governments and central banks: Managing national foreign exchange reserves.
• Large banks: Trading with enormous volumes.
• Forex brokers: Providing services to investors.
• Retail investors: Account for nearly 1/3 of daily trading volume, about 1.7 trillion USD!

This proves that Forex is no longer exclusive to big organizations.

Regulations and Oversight of the Forex Market

Although Forex is enormous, it has very few regulations because there is no single overseeing authority 24/7. Instead:

• In the US, CFTC (Commodity Futures Trading Commission) and NFA ###National Futures Association### are the main agencies.
• In Europe, ESMA oversees Forex activities.
• In the UK, FCA has authority.

Additionally, local trading organizations supervise domestic activities to ensure providers meet certain standards.

Frequently Asked Questions About Forex Trading

( How Much Money Is Traded Daily?

Approximately 5 trillion USD are traded worldwide daily, about 220 billion USD per hour. Most of this is from institutions, corporations, and professional traders, with around 90% used for speculation. USD, EUR, and JPY dominate trading volume.

) How Is Forex Managed?

Forex is monitored by international and local agencies to ensure transparency and fairness. However, due to its scale, no single agency can control the entire market.

( Are There Risks?

Yes. Although Forex has many advantages, it also carries high risks, especially when using leverage. You can lose your entire investment if risk management is not properly handled.

Conclusion: Learn Forex to Start Correctly

Now you know what Forex is, how it works, the opportunities, and the associated risks. The foreign exchange market is the largest financial market in the world with high transparency, low costs, and endless earning potential.

However, remember that understanding Forex is the first crucial step. Before investing real money, practice on a demo account, learn from experienced traders, and develop a clear trading plan.

With proper preparation, Forex can become an effective investment channel in your portfolio. Take action now and start your journey to learn about Forex!