## Foreign Exchange Market - From Concept to Trading Practice in Vietnam

Forex (Forex) is a massive global financial market, but for many Vietnamese investors, it remains a relatively new field. This article will address common questions: **how does the forex market operate, is it legal in Vietnam, and what do you need to know before participating**.

### What Is Forex? The Nature of the Forex Market

The forex market is a platform for foreign currencies on a global scale, where different currencies are continuously bought and sold. Unlike stock markets with centralized exchanges in each country, the forex market operates in a decentralized (OTC - Over The Counter) manner through a network of international brokerage firms.

**Market Size and Liquidity**

This is the largest trading market in the world, with an average daily volume of up to 6.6 trillion USD (according to 2020 data). This high liquidity means you can quickly enter and exit orders without worrying about excessive price fluctuations. The enormous scale of the forex market also ensures it cannot be manipulated by any single or few factors.

**Who Participates in the Forex Market?**

Initially, the forex market was mainly the playground of large banks, central banks, and major import-export companies. They use forex to hedge against currency fluctuations in international transactions or as a store of value during political instability.

However, as international trade grew strongly and individual investors' diversification needs increased, the forex market gradually became a more popular choice. Although the trading volume from individual investors remains much smaller than that of financial institutions, the market's appeal—high liquidity and significant volatility—is increasingly attracting more participants.

### Forex Trading in Vietnam: Legal Issues

A common question is: **is it illegal to trade forex in Vietnam?**

**Current Situation**

According to current Vietnamese law, the state still tightly controls foreign exchange reserves. The licensing authority for forex trading is only granted to authorized banks. As for commercial forex trading platforms, Vietnam has not yet licensed any platform within its territory.

However, this **does not mean forex trading is illegal**. Individual investors are fully entitled to conduct forex transactions for investment purposes. Legal issues only arise if you trade through a brokerage claiming to be "licensed by Vietnam" – which is clearly fake, as the Vietnamese government does not license any forex brokers.

**Safe Ways to Participate**

To trade forex safely and legally, you should choose international brokers licensed by competent authorities in countries that permit forex trading. This ensures you are trading within a clear legal framework and are protected by international regulations.

### Major Currency Pairs in the Forex Market

Not all currency pairs are traded with the same intensity. According to the Bank for International Settlements (BIS) survey in 2019, **EUR/USD is the most traded pair** with over 24% of daily trading volume.

**Top 10 Popular Currency Pairs:**

| Currency Pair | % of Trading | Main Factors |
|---|---|---|
| **EUR/USD** | 24% | ECB and FED interest rate decisions |
| **USD/JPY** | 13.2% | BoJ and FED interest rate policies |
| **GBP/USD** | 9.6% | UK and US GDP growth; BoA decisions |
| **AUD/USD** | 5.4% | Mineral exports; RBA decisions |
| **USD/CAD** | 4.4% | Canada's main export oil prices( |
| **USD/CNY** | 4.1% | US-China economic growth |
| **USD/CHF** | 3.5% | Global economic stability |
| **USD/HKD** | 3.3% | Peg to USD |
| **EUR/GBP** | 2.0% | EU-UK economic relations |
| **USD/KRW** | 1.9% | South Korea's economic development |

These pairs are traded heavily because they represent large economies, have high liquidity, and are influenced by clear policy decisions from central banks.

) Economic Factors Influencing Market Volatility

To predict price movements of currency pairs, you need to understand which economic factors most impact the forex market.

**1. Central Bank Interest Rate Decisions**

Interest rates are considered the "price" of a currency. When a central bank raises interest rates, that currency becomes more attractive ###because it offers higher returns(, causing its value to rise. Conversely, lowering interest rates will decrease the currency's value. This is the most immediate and influential factor.

**2. Gross Domestic Product (GDP)**

GDP reflects a country's economic health. When GDP exceeds expectations, that currency usually appreciates. Conversely, lower-than-expected GDP tends to weaken the currency.

**3. Consumer Price Index (CPI) and Inflation**

CPI and inflation are indirect measures of a currency's value. High inflation forces central banks to raise interest rates to curb it, which in turn affects the currency's price.

**4. Unemployment Rate**

Employment indicators, especially the US ADP and NFP reports, released monthly), indirectly influence central bank interest rate decisions. Rising employment → economic progress → higher interest rates.

**5. Announcements from Monetary Policy Meetings**

The US Federal Open Market Committee (FOMC) meetings are very significant events. Post-meeting statements about monetary policy direction can cause major market volatility within minutes.

( Optimal Trading Hours for the Forex Market

The forex market operates 24 hours a day )from Monday to Friday(, but price volatility is not always the same. It depends on which major trading sessions are active.

**Main Trading Hours:**

| Trading Session | Winter Time | Summer Time |
|---|---|---|
| **Sydney** | 04:00 - 13:00 | 05:00 - 14:00 |
| **Tokyo** | 06:00 - 15:00 | 06:00 - 15:00 |
| **London** | 15:00 - 00:00 | 14:00 - 23:00 |
| **New York** | 20:00 - 05:00 )+1( | 19:00 - 04:00 )+1### |

Each currency pair fluctuates differently depending on which session is open. For example, AUD will have strong movements when Sydney opens, while European pairs (EUR, GBP) fluctuate most during London hours.

( Basic Guide to Opening a Forex Trading Account

**Step 1:** Choose a licensed international broker

This is the most important step. You need to check:
- The broker's reputation )long-standing operation(
- Licenses from authorities like )ASIC, FCA, CySEC, etc.(
- Trader account protection policies
- Trading fees and deposit/withdrawal conditions
- Trading platform quality

**Step 2:** Register and create an account

Most brokers allow you to choose between a demo account )for practice### or a real account (for live trading).

**Step 3:** Select market and trading instruments

Once your account is ready, you can choose currency pairs or other instruments (some brokers also offer commodities, indices, cryptocurrencies).

**Step 4:** Execute trades

Set position size, take profit (take profit), and stop loss (stop loss), then confirm the order.

( Tax Issues in Forex Trading

Currently, Vietnam does not have clear policies on taxing individual forex trading. According to Vietnamese law, forex trading is an unlicensed activity and many legal issues remain undefined.

**Note:** Participating through reputable international brokers is legal, but you should carefully consider associated risks and have a clear risk management plan.

) Things to Know Before Starting

The forex market is vibrant with attractive profit opportunities but also carries risks. Before participating:

- **Understand the law:** While trading through licensed international brokers is permitted, stay informed about current Vietnamese regulations.

- **Choose reputable partners:** A good broker will have strong security, reasonable fees, professional customer service, and a stable trading platform.

- **Start small:** If you're a beginner, start with a small amount or use a demo account for practice.

- **Manage risks:** Always set stop loss and have a clear capital management plan. Forex is highly volatile, and capital loss is a real risk.

With thorough understanding and preparation, the forex market can be an exciting investment option for Vietnamese individual investors.