Lesson 4: What Is the Foreign Exchange Market? Should You Participate in Forex Trading in Vietnam?

The forex market has existed for a long time, closely linked to international trade activities, but many Vietnamese individual investors still have questions about the true nature of this market as well as the legal risks involved in trading foreign exchange in our country. The following article will help you better understand one of the largest financial markets in the world.

1. What Is Forex? The Nature of the Forex Market

Forex or foreign exchange is no longer a strange concept to many investors worldwide. However, in Vietnam, there are still many investors who are hesitant because they do not fully understand what forex is and related legal issues.

The foreign exchange market is global in nature, with no centralized trading floor in each country like the stock market. Therefore, to participate in forex trading, investors must go through the OTC market (decentralized trading) and seek reputable brokerage firms.

Market Size and Liquidity of the Forex Market

The foreign exchange market is the most liquid market worldwide. According to statistics from 2020, the average daily trading volume reached 6.6 trillion USD. Thanks to its large scale and the huge number of participants, this market is almost impossible to manipulate.

Main Participants in the Forex Market

Initially, the forex market was mainly a playground for financial institutions, central banks, and import-export companies. They use forex to hedge against exchange rate fluctuations in international contracts, prevent inflation, and protect asset values during political instability.

Today, as international trade becomes more vibrant, individual investors are gradually paying attention to forex as a diversification tool for their investment portfolios. Although the trading volume of individual investors is still small compared to organizations, the attractiveness of this market is gradually drawing more and more people.

2. Is Forex Trading Legal in Vietnam?

In Vietnam, the government still tightly controls foreign exchange reserves, so the right to trade forex is only granted to banks. Forex trading through platforms in Vietnam has not yet been legally authorized, and you will not find any forex trading platforms officially permitted to operate in our country.

However, this does not mean that forex trading is illegal. Individual investors are fully entitled to conduct forex trading for investment purposes. As long as you trade through internationally licensed brokers authorized in countries that permit forex activities, forex trading is completely legal.

Warning: If you trade through a broker claiming to be “licensed by Vietnam,” that is illegal because the Vietnamese government certainly does not license such activities. To stay safe, choose reputable international brokers licensed by authorized organizations.

3. The Most Commonly Traded Currency Pairs in the Forex Market

According to a survey by the Bank for International Settlements (BIS) in April 2019, EUR/USD is the most traded currency pair, with over 24% of survey participants trading this pair. Next are USD/JPY and GBP/USD, which are considered the most valuable and most actively traded pairs in the forex market.

Top 10 Most Traded Currency Pairs

4. How to Open a Forex Trading Account

Vietnam’s market is becoming an attractive destination for forex brokers. Currently, there are over 100,000 online trading platforms, including reputable ones but also potential scam platforms.

To avoid these risks, you should spend time analyzing the criteria for evaluating a reputable broker:

• Credibility and security
• Trading costs
• Deposit/withdrawal procedures
• Trading platform quality
• Order execution speed
• Customer service quality

Steps to open a forex trading account:

Step 1: Create an online account (choose a demo account or a real account)

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

Step 3: Open buy or sell positions (capitalize on market rises or falls)

Step 4: Set position size, take profit, stop loss levels

Step 5: Confirm the transaction

5. Is Forex Trading Taxable in Vietnam?

According to current Vietnamese law, forex trading is not yet permitted. Forex transactions by individuals or organizations in Vietnam still fall into an unclear legal area. Forex transactions on platforms opened in Vietnam definitely violate the law.

Currently, Vietnam does not have policies allowing forex trading, so the issue of personal income tax from forex has not been raised. However, note that this is a high-risk area and not yet legally authorized in our country.

6. Important Economic News Affecting Forex

Each currency has its own influencing factors, but five main news items impact the fluctuations of most currency pairs:

Central Bank Interest Rate Decisions

Interest rates are considered the “price” of currency. Raising interest rates = currency appreciation, lowering interest rates = currency depreciation. Changes in interest rates are the most directly impactful information on currency pair fluctuations.

Gross Domestic Product (GDP)

When GDP falls below expectations, the currency tends to weaken. Conversely, when GDP exceeds expectations, the currency appreciates.

Consumer Price Index (CPI) and Inflation

CPI and inflation indirectly reflect the value of money through purchasing power. These indices are used by central banks to decide interest rates. High CPI/inflation often leads to interest rate hikes to curb inflation.

Unemployment Rate

This is an indirect indicator affecting forex. Central banks use this index to make interest rate decisions. Rising employment leads to higher interest rates. Two important figures are ADP and NFP (Non-Farm Payroll) in the US, published monthly.

FOMC Meeting

The FOMC meets monthly to set the open market interest rate, then releases assessments of economic conditions and monetary policy effectiveness. FOMC meetings can cause significant market volatility (e.g., on 18/3/2015, EUR/USD surged 400 pips within minutes).

7. Forex Market Trading Hours

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

Each currency pair will have different volatility depending on the trading session. For example, when Sydney opens, the AUD will fluctuate more. When London is active, European currency pairs will experience strong movements.

8. Should You Trade Forex? Important Notes Before Starting

( Legal Issues in Vietnam

The key factor determining whether to participate in forex trading in Vietnam is the legal aspect. Forex trading in Vietnam still has many unclear points in the law.

Forex platforms operated by Vietnam definitely violate the law. However, if you trade forex for investment purposes through countries that accept forex trading, it is not illegal.

) Opportunities and Risks

Forex is the largest financial market in the world with excellent liquidity. All economic information increases liquidity and causes strong price fluctuations for currency pairs. These characteristics make forex a promising market for investors.

Choosing Reputable Trading Partners

To trade forex safely without legal concerns, the most important thing is to choose a reputable broker licensed legally in countries that permit forex trading. Carefully check licensing information, operational history, and user reviews before making a decision.

Individual investors can still participate in this vibrant market through reputable international brokers, as long as they choose the right partner and manage risks prudently.