The journey to kick off global currency trading: From theory to practice in 2025

What is Forex? Exploring the $5.3 Trillion USD Market

Foreign exchange market – also known as Forex/FX – is the world’s largest decentralized international currency trading arena. Every day, the average trading volume reaches $5.3 trillion USD, far surpassing the scale of stock, bond, or real estate markets.

But what exactly is forex? Broadly defined, forex includes many types of international liquid assets such as currencies (USD, EUR, AUD), international payment instruments (cheques, bills of exchange), international bonds (government bonds), stocks(, as well as cryptocurrencies )Bitcoin, Ethereum( and gold. However, when referring to forex trading, people usually mean buying and selling currency pairs to profit from exchange rate differences.

Unlike central banks using Forex to stabilize the national economy, individual investors participating in the market have a clear goal: exploiting exchange rate fluctuations to generate profits. This is why Forex has become a popular investment channel attracting tens of thousands of participants in recent years.

What are the tradable commodities on the Forex platform?

The main commodity in the foreign exchange market is money. Money is traded in pairs, such as EUR/USD, GBP/JPY, or AUD/CAD. Each currency pair has two components:

Base currency )price quote currency(: the currency on the left, representing its value relative to the other currency. For example, EUR/USD = 1.1500 means 1 EUR equals 1.1500 USD.

Quote currency )price denomination(: the currency on the right of the exchange rate.

Although over 30 currencies are actively traded, major currency pairs account for 85% of the market value. These include EUR/USD, USD/JPY, GBP/USD, AUD/USD, USD/CHF, NZD/USD, and USD/CAD – representing the largest economies in the world )United States, EU, Japan, UK, Switzerland, Canada, Australia, New Zealand(.

Besides pure Forex, many reputable trading platforms also offer other assets such as stock indices, commodities )oil, gold(, and cryptocurrencies.

How does forex trading work?

Forex investment essentially involves predicting the direction of exchange rate movements, then placing buy or sell orders to profit from the difference. The Forex market is two-way: you can profit from both rising and falling markets.

Illustrative example: You have $11,500 USD, buy 10,000 Euros at EUR/USD = 1.1500. Two weeks later, when the rate rises to 1.2500, you sell those 10,000 Euros and receive $12,500 USD. Your profit: $1,000 USD.

But this is just the surface. The real attraction of Forex is Leverage )leverage(. Instead of needing $11,500 USD, you can deposit only about $60 as margin to open a large-scale trade, thanks to leverage up to 200 times offered by trading platforms. Of course, leverage is a double-edged sword – it can amplify profits but also increase losses.

Why choose Forex investment over other channels?

Very low transaction costs: Forex does not charge management fees or traditional brokerage fees. Brokers earn mainly from the spread )the small difference between bid and ask prices(.

24/7 global market: Unlike stocks or real estate, Forex has no closing hours. You can trade early morning or late at night, suitable for those seeking extra income outside their main job.

No market manipulation: The market size is enormous and highly participatory )individuals, banks, governments…(, so no single entity can control prices.

Low entry barriers: You can start with just a few hundred thousand VND as margin, something stock or real estate cannot offer.

Core terms in forex trading

Before entering the arena, you need to understand these concepts:

Long: Buying a currency pair with the expectation that its price will rise, thus profiting from appreciation.

Short: Selling a currency pair short when you believe its price will fall, profiting from depreciation.

Leverage: The ability to trade with a larger amount of money than your actual account balance. For example: 50:1, 100:1, or 500:1, meaning with 1 USD you can control 50, 100, or 500 USD.

Margin: The required deposit to open a position. The platform automatically locks this amount to maintain the trade.

Pip: The smallest unit of price movement, typically a decimal point. For EUR/USD, a move from 1.2000 to 1.2005 is a 5 pip change.

Spread: The difference between the bid price )bid( and the ask price )offer(, measured in pips. This is the broker’s profit.

Lot: The contract size. Ranges from nano )100 units(, micro )1,000(, mini )10,000(, to standard )100,000(.

Types of Forex markets

Spot Forex Market: Immediate currency exchange based on agreed rates, settled within 2 business days. This market is mainly for banks and financial institutions, but in Vietnam, it is prohibited for retail investors.

Forex CFD )Contract for Difference(: A contract between two parties on the change in the value of a currency without owning the actual asset. This is the most common form in Vietnam )99% of Forex platforms###, not banned, but it’s advisable to choose platforms licensed by international authorities like ASIC, FCA, CySEC for safety.

Currency Futures: Futures contracts to exchange two currencies at a specific future date at a predetermined price. Not very common in Vietnam.

Currency Options / FX Options: Instruments that give the right, but not the obligation, to buy or sell at a fixed price at expiration. Not very common in Vietnam.

Currency ETFs: Exchange-traded funds tracking the relative value of a currency. Also not popular in Vietnam.

8 steps to start your Forex trading journey

Step 1: Develop a foundational learning plan

To become a forex trader, you need to understand key terms and concepts. Elements like Long, Short, Leverage, Margin, Pip, Spread, Lot are not just vocabulary but the foundation of all trading decisions later. Spend time mastering these concepts before trading with real money.

( Step 2: Explore Forex trading methods

There are various approaches to the Forex market. You can choose Spot Forex )if permitted(, Forex CFD )most popular method###, Futures, Options, or ETFs. Depending on your goals, risk appetite, and available time, select the most suitable method.

( Step 3: Find a reputable Forex broker

The top criterion is credibility: the broker must be licensed by an international regulatory authority )ASIC, FCA, CySEC…###. Also consider transaction fees, commissions, product diversity, user-friendly platform interface, and customer support.

Step 4: Register a Forex account

Simple process: provide ID (both sides), email, phone number, bank account info. The broker will verify your identity and activate your account.

Step 5: Choose currency pairs to trade

Once your account is ready, analyze and select currency pairs. Consider factors such as:

Country’s economic forecast: If the US economy weakens, USD may depreciate. Conversely, a strong economy tends to boost its currency.

Trade balance: Countries exporting high-demand goods will receive more foreign currency, supporting their currency’s appreciation.

Political situation: Elections, monetary policy changes, or high interest rates can significantly impact exchange rates.

Step 6: Determine appropriate margin

Depending on the broker’s policy. If you want to trade $100,000 USD with 1% margin, you need $1,000 USD. A safe rule is to invest only 2% of your margin into a single currency pair to control risk.

( Step 7: Decide to buy or sell

Based on your forecast, choose:

BUY )Long(: If you believe the bid price will strengthen relative to the quote. Profit when the rate rises, loss when it falls.

SELL )Short###: If you believe the bid price will weaken. Profit when the rate drops, loss when it rises.

( Step 8: Use risk management orders

Orders are automatic instructions to execute trades when prices reach certain levels:

Stop Loss )Stop Loss(: Close the trade at a lower price to limit losses.

Take Profit )Take Profit###: Close the trade at a higher price to lock in desired profit.

Example: EUR/USD is currently 1.11128, you predict it will rise to 1.2000 then fall. You set a limit sell order at 1.2000 – when it hits this level, the order executes automatically.

( Step 9: Monitor your account and adjust

Avoid emotional reactions to market volatility. Continue researching, stick to your strategy. Regular monitoring helps you spot opportunities and make timely adjustments.

Factors influencing the forex market

Central banks: Monetary policies like quantitative easing )injecting money into the economy( can devalue a currency, while tightening monetary policy can appreciate it.

Good economic data: When a country releases positive economic news )high GDP, low unemployment…(, investors will pour capital in, increasing currency demand and value.

Market sentiment: If traders believe a currency will move in a certain direction, they will trade accordingly and may influence others, creating a domino effect impacting prices.

How is the Forex market regulated?

Despite its enormous size, Forex is less regulated because there is no single overseeing authority operating 24/7. Instead, each country has its own organization. In the US, the main agencies are CFTC )Commodity Futures Trading Commission( and NFA )National Futures Association(.

Daily trading volume

Globally, about $5 trillion USD is traded daily in the Forex market, equivalent to $220 billion USD per hour. Most of this involves institutions, corporations, governments, and speculators. Notably, 90% of trading volume comes from speculators, mainly focusing on USD, EUR, and JPY.

Market participants

Governments and central banks: Participate to manage foreign reserves and stabilize the economy.

Major banks: Provide liquidity, accounting for most trading volume.

Forex brokers: Intermediaries connecting traders.

Retail investors: Make up nearly 1/3 of daily volume )about $1.7 trillion USD, which is why Forex is a popular choice for those starting to invest outside their main job.

Conclusion

Forex is no longer a distant concept. It is the largest financial investment market globally, characterized by transparency, low entry costs, and unlimited profit opportunities. With these 8 steps, you now have a foundation to start your forex trading journey. Remember, knowledge, discipline, and risk management are the three pillars of every successful trader. The Forex market is waiting for you.