Online Forex Trading: A Comprehensive Guide for Beginners in Vietnam

Why Do You Need to Understand Online Foreign Exchange Trading?

In the era of globalization, foreign exchange is not just for import-export entrepreneurs or large financial institutions. Today, anyone in Vietnam can participate in this market via the internet. Are you ready to step into the world of currency trading, or do you still have many questions?

What Is Foreign Currency and Why Is It Important?

Every country in the world issues its own currency. Foreign currency refers to those issued by other countries – financial assets necessary for various purposes.

The main reasons why demand for foreign currency exists

Vietnamese people need foreign currency for many reasons: paying for imported goods, traveling abroad, studying in other countries, or international work. Besides this practical need, many have discovered another opportunity – using exchange rate fluctuations to generate profit.

Some investors choose to hold foreign currency instead of Vietnamese dong as a hedge against inflation. Any foreign exchange transaction involves a currency pair – such as USD/VND (US dollar versus Vietnamese dong), EUR/USD, or JPY/GBP. The volatility of these pairs creates attractive investment opportunities.

The Foreign Exchange Market in Vietnam: Past and Present

The development journey

Vietnam’s foreign exchange market began developing about 50 years ago, when the country opened up trade after military conflicts. At that time, businesses needed foreign currency to settle payments with international partners.

In the past, only commercial banks were allowed to buy and sell foreign currency, and they had to comply with strict regulations from the State Bank. Foreign exchange was an important tool for the government to manage the national economy.

Changes in the last 10-15 years

About a decade ago, as private banks grew rapidly, a lively interbank foreign exchange market emerged. Banks needed to buy and sell foreign currency with each other to meet customer demands and maintain regulatory ratios.

The establishment of licensed private foreign exchange businesses has facilitated easier flow of foreign currency within the community. Compared to large banks with less competitive exchange rates, these establishments offer better prices.

The digital technology era

In recent years, the emergence of digital platform applications has completely transformed the landscape. Retail investors can now access the international foreign exchange market from home, opening up a host of new opportunities. This technology enables easy online foreign currency trading like never before.

Legal Regulations on Buying and Selling Foreign Currency in Vietnam

Rights of Vietnamese Citizens

Residents who are Vietnamese citizens are allowed to buy and transfer foreign currency abroad according to regulations from the State Bank, including:

• Travel, study, or medical treatment abroad
• International work
• Paying fees to foreign organizations
• Financial support for relatives abroad
• Inheritance or emigration transfers
• Other legal needs

For purposes outside the above list, individuals must be verified by their bank. Each bank has a dedicated department to guide customers and request proof of legitimate use.

Restrictions and regulations on foreign currency sales

Individuals and businesses are free to sell foreign currency to banks. However, selling foreign currency to individuals or businesses is only permitted through banks, credit institutions, or licensed foreign exchange businesses authorized by the State Bank.

Types of Foreign Exchange Transactions You Need to Know

1. Traditional Buying and Selling of Foreign Currency

This is the most common form you encounter daily. For personal purposes like travel or business trips, you can easily buy and sell foreign currency at banks or foreign exchange outlets. The amounts are usually small, so the process is quick.

2. Currency Conversion and Swap

For businesses with large and frequent needs, there are additional forms:

Currency Conversion: Switching from one currency to another at the exchange rate at the time of transaction or as agreed beforehand.

Currency Swap: Buying a certain amount of foreign currency now and selling the same amount in the future at an agreed rate.

3. Spot Market (Foreign Exchange Spot Market)

This involves buying and selling foreign currency at an agreed price between two parties, with settlement immediately or within 2 business days.

4. Forex CFD Contracts (Forex CFD)

These are contracts between two parties based on the price difference of a currency pair. CFDs allow speculation without actually owning the foreign currency. The advantage is you can profit even when the exchange rate declines.

5. Currency Futures Contracts (Currency Futures)

Contracts to exchange one currency for another on a specific future date at a predetermined price.

6. Currency Options (Currency Options)

Tools that give you the right (but not the obligation) to buy or sell a certain amount of foreign currency at an agreed rate within a specified period. These are effective risk management tools for import-export businesses.

7. Currency ETF Funds (Currency ETF)

These funds track the relative value of one or more currencies against the US dollar. They help investors access the foreign exchange market in a structured way and reduce risks.

Step-by-Step Guide for Beginners to Online Currency Trading

Step 1: Assess Your Risk Appetite

Before starting to buy and sell foreign currency online, you must understand how much risk you can tolerate. All investment forms carry risks. Identifying your acceptable risk limit is a crucial step to protect your capital.

Step 2: Open a Trading Account

To begin, choose a reliable online forex trading platform. The registration process is usually very simple – just fill in basic information, which can be via email or mobile phone.

Step 3: Determine Your Margin Capital

You need to deposit money into your margin account to start trading. Most platforms require a minimum margin (usually from 50 USD). Some providers allow leverage, meaning you can trade with a larger amount than your actual capital.

Warning: Leverage can multiply profits many times over, but it can also multiply losses. For example, if you have 1 USD and are granted 1% margin, you can trade with a value of 100 USD. This is how you can participate in the forex market with small capital, but careful risk management is essential.

Step 4: Choose Currency Pairs to Trade

The first step in currency trading is selecting suitable currency pairs. To do this, you need to understand news about the two currencies and predict their price movement.

Many factors influence exchange rates, but you cannot monitor all. Focus on these three main factors:

Interest Rate Differentials: Central banks control interest rates, affecting inflation and exchange rates. Economies with higher interest rates attract foreign capital, increasing the exchange rate. However, high inflation can nullify or reverse this effect.

Inflation Differentials: Countries with low inflation tend to have stronger currencies because of higher relative purchasing power. Historically, countries like Japan, Germany, and Switzerland have low inflation and strong currencies. Conversely, currencies of high-inflation countries tend to depreciate.

Political Stability and Economic Performance: Investors prefer countries with stable politics and strong economies. These countries attract more capital. Political instability reduces confidence in the currency, prompting investors to shift to safer countries.

Key currency pairs to start with:

• USD (US dollar)
• EUR (Euro)
• GBP (British Pound)
• AUD (Australian Dollar)
• JPY (Japanese Yen)
• NZD (New Zealand Dollar)
• CHF (Swiss Franc)
• CAD (Canadian Dollar)

Major economies like the US, Australia, Canada, New Zealand, Japan, and the UK continuously release economic signals. This is a good starting point for your research.

Step 5: Choose the Appropriate Trading Tool

Analyze exchange rate trends to select the right tool. For example, if you predict JPY will depreciate against USD, instead of directly buying JPY, you can use Forex CFD to profit when the rate declines.

Step 6: Continuous Monitoring and Strategy Maintenance

Exchange rates change every minute, so currency investment is a long-term process requiring discipline. You must:

• Master basic knowledge of the forex market
• Regularly update market information
• React quickly to changes
• Stick to your established strategy
• Manage risks seriously

Professional knowledge is an indispensable foundation in any investment, including online foreign currency trading.

Important Notes When Starting Out

The foreign exchange market has existed for centuries, serving international trade needs. Over various historical periods, it has evolved from direct transactions to modern forex products, serving many purposes.

Today’s financial technology enables millions of individuals to access the global financial markets. However, success requires you to:

1. Research thoroughly before investing
2. Start with small capital to gain experience
3. Never invest money you fear losing
4. Maintain discipline and adhere to your strategy
5. Continuously improve your knowledge and skills

We hope this guide helps you start your journey in the foreign exchange market smartly and safely.