Mastering Forex Market Knowledge: A Comprehensive Guide for Investors

The foreign exchange market has been operating for centuries, closely linked to international trade transactions. However, for many individual investors in Vietnam, learning about the forex market remains a challenge. The questions “What is the essence of the Forex market?” and “Should I participate or not?” continue to be raised by investors considering their options. This article will provide a detailed overview of this largest investment channel globally, helping you better understand the opportunities and risks involved.

The Nature and Characteristics of the Forex Market

Definition and Market Structure

Forex or the foreign exchange market is a global trading space where currencies are bought and sold. Unlike stock markets with centralized exchanges in each country, Forex operates in a decentralized OTC (Over-The-Counter) manner through banking systems and international brokerage firms.

This is a global market with the highest liquidity worldwide, with an average daily trading volume reaching 6.6 trillion USD (according to 2020 data). This enormous scale ensures that the Forex market cannot be dominated or manipulated by any organization.

Main Participants

Initially, the foreign exchange market was a playground for large financial institutions, central banks, and import-export companies. They use Forex to hedge against exchange rate fluctuations in international contracts, protect against inflation, and preserve value during political instability.

With the rise of international trade and the diversification of investment needs among individual investors, Forex has gradually become an attractive tool. Although the trading volume of individual investors remains smaller than that of organizations, continuous growth shows increasing interest.

Legal Status of Forex Trading in Vietnam

Current Regulations

In Vietnam, the government maintains strict control over foreign exchange reserves, so foreign exchange trading rights are only granted to licensed banking institutions. Forex trading through exchanges has not yet been legalized, so there are no domestic Forex exchanges authorized to operate.

However, this does not mean that forex trading is illegal. Individual investors are fully permitted to participate in Forex for investment purposes, provided they use brokerage companies licensed by countries that allow Forex activities.

Safe Legal Guidance

To avoid legal risks, it is crucial to only trade through reputable international brokers licensed by authorized regulatory agencies. Trading with any company claiming to be licensed by Vietnam is highly risky and illegal.

Popular Currency Pairs in the Market

According to the Bank for International Settlements (BIS) survey in 2019, the most traded major currency pairs include:

Trading Account Opening Process

Choosing a Broker

There are over 100,000 online trading platforms worldwide, including reputable companies and potential scam sites. When selecting a broker, evaluate factors such as:

• Reputation and information security
• Trading fees
• Deposit/withdrawal procedures
• Trading platform quality
• Order processing speed
• Customer service quality
• Licenses from competent regulatory agencies

Account Opening Steps

Step 1: Register online (choose a demo account for learning or a real account for trading)

Step 2: Select the currency pair or asset to trade

Step 3: Determine your position (buy or sell) based on your analysis

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

Step 5: Confirm and execute the trade

Tax Issues When Trading Forex in Vietnam

According to current Vietnamese law, Forex trading is an unpermitted activity. Therefore, Vietnam currently has no specific policies regarding personal income tax for Forex activities.

However, this is a legally undefined area, and investors should be aware of potential risks when participating. If planning to trade Forex, consider legal consultation to understand your obligations clearly.

Economic Factors Affecting the Forex Market

Main Factors

1. Central Bank Interest Rate Decisions

Interest rates are considered the “price” of currency. An increase → currency value rises; a decrease → currency value falls. This is the most important information directly affecting currency pair fluctuations.

2. Gross Domestic Product (GDP)

When GDP falls below forecasts, currency value tends to decline. Conversely, exceeding expectations often boosts currency value.

3. Consumer Price Index (CPI) and Inflation

These indicators reflect the purchasing power of money. High CPI or inflation usually leads to interest rate hikes to curb inflation, indirectly affecting currency prices.

4. Unemployment Rate

This index helps the central bank decide on interest rates. Rising employment puts upward pressure on interest rates. US ADP and NFP data are closely monitored each month.

5. US Federal Open Market Committee (FOMC) Meetings

Monthly, the FOMC meets to set interest rates. Post-meeting announcements can cause significant market volatility. For example, on 18/3/2015, EUR/USD surged 400 pips within minutes after the FOMC decision.

Forex Market Trading Hours

Forex operates 24 hours, 5 days a week, thanks to trading sessions in different time zones:

Each session has its characteristics: Sydney is strong with AUD, London with European currencies. Understanding trading hours helps you choose the optimal time to trade.

Should You Participate in Forex Trading?

Points to Consider

Deciding to participate in Forex depends on many factors. First is the legal aspect — although Forex is not yet legalized in Vietnam, trading through reputable international brokers does not violate the law.

Forex is the largest and most liquid financial market globally. All economic information can cause significant currency fluctuations, creating profit opportunities for investors.

The Gap for Vietnamese Investors

As an individual investor, you can fully participate in this market through licensed international brokerage firms authorized in countries that permit Forex.

The most important thing is to choose a trustworthy trading partner, properly licensed, to ensure the safety of your capital and information. Take time to research and compare before entering the foreign exchange market.