Foreign Exchange Market: From Fundamentals to Investment Decisions for Vietnamese Traders

Outside the surface, the forex market has been active throughout the history of international trade, but for many Vietnamese investors, it remains a field full of questions. Is this a legitimate investment channel? What is the true nature of this market? And how can one participate safely? This article will answer those questions.

Legal Issues: The Starting Point You Need to Understand

Before discussing trading mechanisms, you need to understand the current legal status. In Vietnam, the State maintains strict control over foreign exchange reserves, so only licensed banking institutions are authorized to conduct official transactions. Separate forex trading platforms are not yet legally permitted to operate in Vietnam.

However, an important point is: trading forex without permission does not mean it is illegal. Individuals are fully allowed to engage in foreign exchange trading for investment purposes through internationally licensed brokerage companies in countries that accept such activities. What is prohibited is participating in unlicensed forex platforms established illegally in Vietnam or fake brokerage companies claiming to have “licenses from Vietnam.”

Currently, Vietnam has not established specific tax policies for profits from forex trading, as this activity remains in a “not clearly regulated” area. This is also a risk you need to consider carefully.

What Is the Forex Market? Its Nature and Scale

The foreign exchange market differs from the stock market in that it has no physical trading center. Instead, it is a global, decentralized (OTC - Over The Counter) network where traders interact through licensed brokerage firms.

Actual Scale

The forex market has a daily trading volume of about 6.6 trillion USD (data from 2020) — making it the most liquid market in the world. This scale ensures that no one, even large organizations, can manipulate prices unilaterally.

Who Are the Players?

Initially, the foreign exchange market was an exclusive playground for financial institutions, central banks, and import-export companies. They use forex to hedge against exchange rate volatility, hedge inflation, or store value during political instability.

Today, as individual investors’ diversification needs increase, they are gradually participating in this market. Although the trading volume of retail investors is still smaller than that of institutions, high liquidity and continuous price volatility opportunities are attracting more and more participants.

Top 10 Most Traded Currency Pairs

According to the 2019 data from the Bank for International Settlements (BIS), here are the most prominent currency pairs:

EUR/USD is the most traded because these two currencies represent the world’s largest economies, offering higher liquidity and predictability compared to other pairs.

Economic Factors Shaping Forex Volatility

Central Bank Interest Rate Decisions

Interest rates are the “price” of a currency. When rates rise, that currency becomes more attractive to international investors, exerting upward pressure on its value. Conversely, lowering rates reduces attractiveness, causing the currency to depreciate. This is the most immediate factor influencing currency pair fluctuations.

Gross Domestic Product (GDP)

Lower-than-expected GDP often leads to currency depreciation; higher-than-expected GDP tends to boost currency value. This reflects the long-term economic health of a country.

Consumer Price Index (CPI) and Inflation

High CPI and rising inflation usually prompt central banks to increase interest rates. These indicators are indirect measures of the real purchasing power of a currency.

Unemployment Rate

Rising employment tends to push interest rates higher, as central banks try to balance inflation and growth. The US’s monthly ADP and NFP reports are closely watched by traders.

FOMC Announcements (U.S. Federal Open Market Committee)

Monthly meetings to set open market interest rates. Post-meeting statements, especially policy stance changes, can cause significant market volatility. For example, on March 18, 2015, EUR/USD surged 400 pips within minutes after FOMC comments on the USD.

Trading Hours: When the Market Is Most Active

The forex market operates 24 hours a day, 5 days a week, with four main trading sessions:

Each session has its characteristics: Sydney session often sees strong AUD movements, London focuses on European currencies, and New York centers on the US dollar. Traders can monitor all four sessions through a single platform without needing separate accounts.

Steps to Open a Forex Trading Account

Step 1: Choose a Reputable Broker

Vietnam currently has over 100,000 online trading platforms, but not all are trustworthy. Select a company licensed by reputable international regulatory agencies (such as ASIC in Australia, FCA in the UK, etc.).

Evaluation Criteria:

• Reputation, data, and fund security
• Trading costs (spread, commissions)
• Withdrawal and deposit speed
• Trading platform quality
• Order execution speed
• Customer service quality

Step 2: Register an Account

You can choose a demo account (for free practice) or a real account (to trade with real money). The online registration process is usually simple and quick.

Step 3: Select Currency Pair or Trading Instrument

Choose the market you want to trade (e.g., EUR/USD, gold, stock indices, cryptocurrencies, etc.).

Step 4: Set Up Your Position

Decide whether to go long (buy) or short (sell), position size, take profit, stop loss, and other parameters.

Step 5: Execute the Trade

Confirm the order, and the trade is executed at the current market price.

Risks You Need to Know

Forex is not a shortcut to quick wealth. In fact, it is a highly risky market because:

• Leverage Usage: Many brokers offer leverage up to 1:200 or higher, meaning you can earn large profits but also lose your entire capital quickly.
• Unpredictable Volatility: Unexpected geopolitical events can shock the market.
• Legal Risks in Vietnam: As mentioned, regulations are still unclear and may change.
• 24/5 Trading: Despite high liquidity, this also means you must monitor the market continuously.

Should You Invest in Forex?

The foreign exchange market is the largest financial market in the world with unlimited liquidity. Every economic development causes price fluctuations, creating profit opportunities for knowledgeable traders.

However, the decision to participate depends on three factors:

1. Level of Knowledge: Should you study deeply about economic factors, technical analysis, risk management?
2. Financial Capacity: Do you have enough money to tolerate losses without affecting daily life?
3. Psychological Preparedness: Can you withstand psychological pressure during strong market volatility?

If the answer is “yes” to all three questions, and you choose a reputable, licensed international broker regulated by trusted authorities, forex trading can be part of your diversified investment portfolio. But remember: never invest money you cannot afford to lose.