What is a Forex Trader? A Detailed Guide to the Foreign Exchange Market for Vietnamese Investors

Main Content of the Forex Market

The foreign exchange market has existed for a long time, associated with international trading activities. However, in Vietnam, many investors still do not fully understand the nature and operating mechanisms of this market. Especially, the concept of forex trader is what still raises many questions.

The foreign exchange market is a global, decentralized structure, with no centralized exchange in a specific country like the stock market. Instead, traders participate through the OTC market (decentralized trading) by contacting foreign exchange brokerage firms.

Scale and Liquidity - The Power of the Forex Market

The foreign exchange market is the largest trading platform in the world by trading volume. According to 2020 statistics, approximately 6.6 trillion USD are traded daily on this market. Its extremely high liquidity and enormous scale ensure that the forex market cannot be manipulated by any individual or organization.

Forex traders include: from central banks, international financial organizations, import-export companies to individual investors. Initially, the forex market was mainly a playground for large organizations to hedge against risks from currency fluctuations and inflation. In recent years, with technological development and the diversification of investment portfolios, more and more individual investors are participating in this market.

Most Traded Major Currency Pairs

According to the Bank for International Settlements (BIS) survey in 2019, EUR/USD is the most traded currency pair, accounting for over 24% of daily transactions. Next are USD/JPY (13.2%) and GBP/USD (9.6%). These currency pairs represent the largest economies and have the highest liquidity.

Legal Issues: Forex Trading in Vietnam

A key question many Vietnamese investors ask is whether forex trading is legal or not. According to current Vietnamese regulations, forex trading activities are only permitted for commercial banks. The government has not licensed the establishment of forex trading platforms in Vietnam, so there are no licensed forex exchanges in Vietnam.

However, this does not mean that forex trading is illegal. Vietnamese individuals are fully allowed to participate in forex trading through internationally licensed brokerage companies authorized in countries that permit this activity. An important point to remember is that you should choose brokers licensed by reputable foreign regulatory agencies, not companies claiming to be “licensed in Vietnam” — that is definitely a scam.

Economic Factors Affecting the Forex Market

To succeed in forex trading, a forex trader needs to understand the economic factors that directly impact currency prices:

1. Central Bank Interest Rate Decisions
Interest rates are considered the “price” of a currency. When interest rates rise, the value of the currency tends to increase, and vice versa. This is the most immediate and influential factor affecting price fluctuations of currency pairs.

2. Gross Domestic Product (GDP)
GDP reflects the economic health of a country. When GDP exceeds expectations, the country’s currency tends to strengthen. Conversely, lower-than-expected GDP often leads to currency weakening.

3. Consumer Price Index (CPI) and Inflation
These two indices measure the real purchasing power of money. High CPI or inflation will prompt central banks to raise interest rates to control inflation.

4. Unemployment Rate
Rising employment levels lead to upward pressure on interest rates. Monthly employment reports like ADP and NFP in the US have a strong impact on the forex market.

5. FOMC Meeting (FOMC)
The FOMC meets monthly to set interest rates and release economic outlooks. These meetings can cause significant volatility — for example, on March 18, 2015, the EURUSD jumped 400 pips within minutes after the FOMC meeting.

Forex Market Trading Hours

The forex market operates 24 hours a day, 5 days a week, with major trading sessions in different geographic locations:

Each trading session features different currency pairs with varying volatility depending on the active hours. For example, when Sydney opens, AUD will have higher volatility. When London is active, European currency pairs tend to be more volatile. You can trade almost 24/5 across different currency pairs without opening multiple accounts on different platforms.

Forex Account Opening Process

To start forex trading from Vietnam, you need to follow these steps:

Step 1: Choose a reputable international broker licensed by international financial regulatory agencies.

Step 2: Register an online account (with options for a demo account for practice or a real account for live trading).

Step 3: Select the market you want to trade (e.g., EUR/USD, gold, oil, etc.).

Step 4: Open a buy or sell position based on your market forecast.

Step 5: Set the position size, take profit, and stop-loss levels to manage risk.

Step 6: Confirm the trade to execute the order.

When choosing a broker, you should evaluate based on: reputation and security, trading costs, deposit/withdrawal speed, platform quality, order execution speed, and customer support.

Tax Issues in Forex Trading

According to current Vietnamese law, forex trading through licensed platforms in Vietnam is not yet legalized, so there are no specific regulations regarding income tax from forex trading. This remains a legally unclear area in Vietnam.

This emphasizes the importance of selecting reputable brokers licensed abroad, helping you avoid potential legal risks.

Should You Participate in the Forex Market?

The forex market offers many opportunities due to high liquidity, volatility, and near 24/5 trading hours. However, before participating, you should consider:

• Legal issues: Although forex trading is not entirely illegal in Vietnam if done through internationally licensed brokers, it is essential to understand the legal context.

• Knowledge and experience: A forex trader needs to understand technical analysis, fundamental analysis, risk management, and trading psychology.

• Choosing a reputable partner: Vietnam has over 100,000 online trading platforms, some reputable and some scams. You need to spend time researching and selecting a legally licensed broker in countries that permit forex trading.

• Risk management: Always use stop-loss orders, control position sizes, and never trade with money you cannot afford to lose.

The forex market provides attractive profit opportunities for individual investors, but success requires discipline, extensive knowledge, and thorough preparation.