What is Foreign Exchange? Is Forex a Reasonable Choice for Vietnamese Investors?

Understand the True Nature of the Forex Market

What is Forex? This is a question many Vietnamese investors are asking as the global financial market becomes more accessible. The foreign exchange market is not a new concept worldwide, but for Vietnam, it remains an area with many unclear points, especially regarding legal regulations and operational mechanisms.

Essentially, what is forex? It is a global currency trading market without a centralized headquarters. Unlike stock or commodity markets, the foreign exchange operates in a decentralized (OTC - Over The Counter) manner through online brokerage firms. The global nature of this market makes it a playground for central banks, international financial organizations, import-export companies, and today, individual investors.

Market Size and Liquidity

One of the factors that make Forex attractive is its enormous scale. With an average daily trading volume of 6.6 trillion USD (according to 2020 statistics), it is the most liquid market on the planet. Thanks to the large number of participants from various countries, major organizations cannot manipulate prices, ensuring market transparency.

Legal Issues: Is Forex Trading Legal in Vietnam?

This is a top concern for Vietnamese investors. According to current regulations, Vietnam tightly controls foreign exchange reserves, so only banks are permitted to conduct commercial forex transactions. Private Forex trading platforms are not legally authorized to operate in Vietnam.

However, this does not mean forex trading is illegal. Individual investors can participate in Forex for investment purposes through internationally licensed platforms in countries where such activities are permitted. The key point is to avoid using “licensed by Vietnam” brokers, as the government does not authorize such operations. To be safe, choose intermediary companies monitored by reputable international regulatory agencies.

Most Commonly Traded Currency Pairs

Not all currency pairs have the same trading appeal. According to the Bank for International Settlements (BIS) survey in 2019, which pairs dominate?

EUR/USD leads with over 24% of daily trading volume, heavily influenced by interest rate decisions from the European Central Bank (ECB) and the US Federal Reserve (FED). Next is USD/JPY (13.2%), sensitive to interest rate changes by the Bank of Japan (BoJ), and GBP/USD (9.6%), closely related to economic growth in the UK and US.

Other pairs like AUD/USD, USD/CAD, USD/CNY, USD/CHF, USD/HKD, EUR/GBP, USD/KRW are also widely traded but with varying levels. Each currency pair has its own economic factors influencing its price fluctuations.

Key Economic Factors Affecting the Market

To understand what forex is in practice, it’s essential to grasp the factors that determine price movements. There are five most important economic news:

Interest rate decisions from central banks have the strongest impact. When interest rates rise, the currency’s value increases; when they fall, the currency weakens.

GDP figures are equally important. Higher-than-expected GDP creates upward pressure on the currency, while lower-than-forecast GDP drags the price down.

Consumer Price Index (CPI) and inflation are indirect measures of currency value. High inflation forces central banks to raise interest rates.

Unemployment rate is an indirect indicator but closely watched by banks. Rising employment suggests potential interest rate hikes, a positive signal for the currency.

US Federal Open Market Committee (FOMC) announcements have a significant impact on the entire market. These meetings can cause huge price swings within minutes, with historical instances of EUR/USD soaring hundreds of pips.

Optimal Trading Hours

The forex market operates 24 hours a day, five days a week, thanks to its decentralized structure. From Sydney to New York, major trading sessions operate at different times:

• Sydney: 4:00 - 13:00 (winter) / 5:00 - 14:00 (summer)
• Tokyo: 6:00 - 15:00 year-round
• London: 15:00 - 0:00 (winter) / 14:00 - 23:00 (summer)
• New York: 20:00 - 5:00 (+1) (winter) / 19:00 - 4:00 (+1) (summer)

Each session opens with different volatility levels for currency pairs. For example, when London opens, European currency pairs tend to be more active. Traders can monitor all four sessions on a single platform without opening multiple accounts.

To Trade Forex or Not? Important Considerations

Deciding whether to trade Forex depends on many factors. Legally, as analyzed, trading on reputable international platforms is acceptable, but it still carries risks because Vietnamese law is not yet clear on this field.

From a profit potential perspective, Forex is the largest financial market in the world with extremely high liquidity. Every economic piece of information can trigger strong fluctuations, creating profit opportunities for those who know how to seize them. However, this also means high risk if traders lack a clear strategy.

If you decide to participate, the first step is to choose a trustworthy trading partner licensed in countries where Forex is permitted. Evaluate criteria such as reputation, security, trading fees, execution speed, and customer service. Start with a demo account to better understand how it works before investing real money.

The foreign exchange market is not a tool for quick wealth but a long-term investment channel that requires knowledge, discipline, and good risk management. Only well-equipped investors with these conditions can expect success in this field.