What Is the Foreign Exchange Market? A Comprehensive Guide for Vietnamese Investors

In recent years, beyond traditional stocks, an increasing number of Vietnamese investors have been asking about the foreign exchange market (Forex) – a massive financial sector that remains relatively underdeveloped in our country. This article will help you understand the nature, structure, and legal issues related to Forex.

Basic Concept: What Is Forex?

Forex is no longer an unfamiliar term in the global economy, but in Vietnam, many investors still feel confused about its essence and the legal regulations surrounding foreign exchange trading activities.

The nature of the foreign exchange market is a decentralized (OTC - Over The Counter) trading platform, completely different from traditional stock exchanges. Because forex is a global market, there is no central exchange established in each country. Instead, investors participate through international brokerage firms.

Scale and Massive Liquidity

The foreign exchange market is the most liquid financial market worldwide, with an average daily trading volume reaching 6.6 trillion USD (according to 2020 statistics). Due to this scale and the large number of participants, the forex market is almost impossible to manipulate by one or a few entities.

Market Participants

Initially, forex was mainly a playground for large financial institutions, central banks, and import-export companies. They use forex to:

• Hedge against currency fluctuations in international contracts
• Protect assets from inflation
• Store value during political instability

However, as international trade develops strongly and individual investors’ diversification needs increase, forex has become an attractive investment tool. Although the trading volume from individuals is still low compared to organizations, the relatively consistent attraction continues to draw more people.

Legal Situation: Is Playing Forex Legal in Vietnam?

This is a question that most Vietnamese investors are concerned about. The answer is not as simple as “yes” or “no.”

Current Regulations

In Vietnam, the State maintains strict control over foreign exchange reserves. Only licensed banks are allowed to conduct official forex transactions. For this reason, there are no licensed forex trading platforms in Vietnam.

Important Distinction

However, it is important to note that:

• Establishing a Forex platform in Vietnam is illegal
• Individual forex trading for investment purposes is not illegal

Individual investors are fully entitled to conduct forex trading for investment purposes, as long as they operate through licensed brokerage companies in countries where such trading is permitted.

Safe Ways to Participate

To avoid legal risks:

• Choose brokerage firms licensed by international authorities (not “licensed by Vietnam”)
• Look for brokers monitored by reputable organizations such as international securities commissions
• Completely avoid “licensed by Vietnam” platforms, as these are definitely counterfeit

Most Traded Currency Pairs

According to the Bank for International Settlements (BIS) survey in 2019, here are the top 10 currency pairs with the largest trading volumes:

Economic Data Affecting Forex

Each currency has its own factors, but there are 5 key economic news items that influence all currency pairs:

1. Central Bank Interest Rate Decisions
Interest rates are considered the “price of currency.” Raising interest rates = currency appreciation; lowering interest rates = currency depreciation. This information has the fastest and strongest impact.

2. Gross Domestic Product (GDP)
GDP below expectations → currency tends to weaken. GDP above expectations → currency tends to strengthen. This correlation is very direct.

3. Consumer Price Index (CPI) and Inflation
An indirect measure of currency value through the amount of goods money can buy. High CPI → central bank may raise interest rates.

4. Unemployment Rate
This index influences indirectly through interest rate decisions. More employment usually leads to upward pressure on interest rates. Monthly releases like ADP and NFP (US) are closely watched by traders.

5. Announcements from the US Federal Open Market Committee (FOMC)
FOMC meets monthly to set interest rates and provide economic outlooks. These meetings often cause significant market volatility (e.g., on 18/3/2015, EUR/USD surged 400 pips after the FED’s negative outlook on USD).

Forex Trading Hours

The forex market operates 24 hours a day, 5 days a week, as major global exchanges open sequentially:

Each exchange has different volatility depending on the currencies traded. For example, Sydney has more fluctuations in AUD, London sees more activity in European currencies. You do not need to open multiple accounts—access all four markets through a single trading platform.

How to Choose a Reputable Broker

The Vietnamese market is becoming attractive to brokerage firms, but it also hides many scam platforms. To choose correctly, evaluate based on these criteria:

• Reputation and licensing: Check licenses from international authorities
• Trading costs: Compare spreads and commissions
• Deposit/withdrawal support: Methods, processing speed
• Trading platform: Interface, features, stability
• Order execution speed: Critical factor
• Customer support: Vietnamese language support, quick responses

How to Open a Forex Trading Account

Since Vietnam does not permit opening a local Forex platform, you need to create an account with a licensed foreign broker. The general process is:

Step 1: Create an Account

• Choose account type (demo for practice or real account)
• Register online with personal information

Step 2: Select Market

• Choose currency, commodity, or financial instrument to trade

Step 3: Open a Position

• Decide to buy (long) or sell (short)
• Take advantage of market rising or falling

Step 4: Manage Risks

• Set position size
• Place Stop Loss (stop-loss) and Take Profit (take-profit)

Step 5: Confirm Trade

• Review information and execute the trade

Tax Issues and Legal Risks

Currently, Vietnam has no clear policy regarding income tax from forex trading, as this activity remains outside the legal framework permitted in Vietnam.

This means:

• There are no specific tax regulations on profits from Forex
• But there is no clear legal protection for investors

Investors should be aware that this is a “gray area” legal sector, and trading Forex in Vietnam still carries high legal and financial risks.

Should You Trade Forex or Not?

The decision depends on legal considerations and your risk tolerance.

Advantages of Forex

• Extremely high liquidity, trading 24/5
• Strong volatility creates profit opportunities
• Diverse tools (currencies, commodities, indices, stocks)

Points to Note

• Vietnamese law is still unclear on this sector
• High financial risk, especially with leverage
• Deep knowledge of technical analysis and economics required
• Scam brokers still exist

Recommendations

If you decide to participate, please:

1. Choose brokers with clear international registration
2. Start with a demo account to practice
3. Deposit only what you can afford to lose
4. Always use Stop Loss to manage risks
5. Continuously update economic information

The forex market is a huge financial sector with great profit potential but also high risks. The final decision to trade Forex should be based on full understanding, a clear plan, and professional risk management.