ESSENTIAL GUIDE: What Is Forex Trading and How to Start Investing in 2025

🎯 Basic Concepts of the Foreign Exchange Market

In recent years, the foreign exchange trading (Forex/FX) has become a focal point for Vietnamese investors. However, many people still confuse the true definition of what forex trading is and how it operates.

Forex Definition

Foreign exchange, also known as Forex/FX, is not just about exchanging currencies. According to international definitions, forex can include:

• Foreign currencies: USD, EUR, AUD, and other currencies
• International payment tools: bank cards, bills of exchange, money transfer checks
• Value certificates: government bonds, international stocks
• Digital assets: Bitcoin, Ethereum, and other cryptocurrencies
• Precious metals: gold and silver

In the context of modern trading, what is forex trading is best understood as a decentralized marketplace where investors buy, sell, and exchange currency pairs aiming to profit from exchange rate fluctuations.

Market Size

The foreign exchange market is the largest financial market globally, with an average daily trading volume of up to 5.3 trillion USD. This enormous scale makes other markets like stocks or bonds seem small in comparison. Continuous volatility creates countless profit opportunities for traders.

💱 What Can You Trade

How Currency Pair Trading Works

In the forex market, the main traded asset is currency, divided into pairs. A typical example is EUR/USD, where:

• EUR (Euro) is the base currency - the currency listed first
• USD (US Dollar) is the quote currency - the currency listed second

Since exchange rates between currencies constantly fluctuate due to economic and geopolitical factors, this opens up continuous trading opportunities for all investors.

Major Currency Pairs

Although over 30 currencies are traded, the major pairs account for up to 85% of the market value:

• EUR/USD, USD/JPY, GBP/USD, AUD/USD, USD/CHF, NZD/USD, USD/CAD

These pairs have the highest liquidity and the lowest trading fees.

Beyond Currencies

Reputable trading platforms today offer many other asset classes besides forex:

• Stock indices (Stock Indices)
• Commodities (Commodities)
• Gold (Gold)
• Cryptocurrencies (Cryptocurrencies)

📊 How Does Forex Investment Work?

Basic Principles

What is forex trading essentially? It is the activity of predicting exchange rate movements between two currencies to make a profit.

Suppose you predict that the EUR/USD pair will increase in value:

1. You place a BUY (Long) order on the EUR/USD pair
2. Wait for the rate to rise
3. SELL to realize profit from the difference

Or, if you believe the price will fall, you can SHORT (Short) - sell first, buy later.

Real Example

You use 11,500 USD to buy 10,000 EUR at an exchange rate of EUR/USD = 1.1500.

Two weeks later, the rate rises to 1.2500, and you sell 10,000 EUR, receiving 12,500 USD.

Result: A profit of 1,000 USD from a small rate difference.

Power of Leverage (Leverage)

A special feature of forex trading is that you don’t need to put out the full 11,500 USD. With leverage up to 200:1, you only need to deposit about 60 USD margin to open a similar trade.

Warning: Leverage is a double-edged sword - it can multiply profits but also amplify losses. Use it carefully.

✨ Advantages of Forex Investment

Extremely Low Trading Fees

Unlike other investment channels, forex has no brokerage fees, asset management fees, or direct income taxes. Platforms only earn from the spread (the difference between buy and sell prices), which is usually very small.

Market Operates 24/7

Forex operates around the clock worldwide. This allows you to trade according to your own schedule—morning, noon, afternoon, or night, even when you are outside or resting.

No Market Manipulation

With a daily volume of 5.3 trillion USD and hundreds of millions of participants, no agency or organization—including central banks—can control or manipulate the market.

Low Barrier to Entry

You can start with just a few hundred thousand VND in margin, lower than any other investment market like stocks or real estate.

🚀 8 Steps to Start Forex Trading

Step 1: Master 8 Basic Concepts

Before trading, you need to understand industry terms:

Long (Buy): Buying a currency pair expecting the price to rise. Profit comes from the increase.

Short (Sell Short): Selling a currency pair expecting the price to fall. Profit comes from the decrease.

Leverage (Leverage): Trading with a larger amount than your capital. Ratios like 50:1, 100:1, 500:1 indicate how many times you can control the amount.

Margin (Margin): The amount you need to deposit to open and maintain a position.

Pip (Point): The smallest change in exchange rate, usually calculated to 4 decimal places. For example, EUR/USD from 1.2000 to 1.2005 is a 5 pip increase.

Spread (Spread): The difference between bid (Bid) and ask (Ask) prices, measured in pips. This is the broker’s profit.

Lot (Lot): The contract size you trade. Ranges from nano (100 units) to standard (100,000 units).

Slippage: The difference between the expected price and the actual execution price.

Step 2: Learn About Forex Market Types

Spot Forex Market: Immediate trading with settlement within 2 business days. This type is prohibited in Vietnam.

Forex CFD: Contract for Difference allowing speculation on prices without owning the actual asset. This is the most common form in Vietnam (accounting for 99% of platforms).

Currency Futures: Futures contracts with fixed expiration dates. Less common in Vietnam.

Currency Options: FX options giving the right to buy or sell at a certain price. Not popular in Vietnam.

Currency ETFs: Exchange-traded funds tracking currency prices. Also less common in Vietnam.

Step 3: Choose a Reputable Trading Platform

The most important criterion is that the platform must be licensed by international regulatory agencies like ASIC, FCA, or CySEC. Additionally, consider:

• Trading fees and commissions
• Available trading products
• Platform quality
• Customer support

Step 4: Open a Trading Account

Simple process:

• Provide ID/CCCD (front and back)
• Verify email and phone number
• Link bank account

Step 5: Select Currency Pairs to Trade

Analyze based on factors:

Economic Conditions: If you predict the US economy will weaken, the dollar may depreciate. Conversely, a strong economy usually boosts its currency.

Trade Balance: Countries exporting many goods will accumulate foreign currency, increasing their currency’s value.

Political Situation: Elections, policy changes, or political events can significantly impact exchange rates.

Step 6: Determine Margin

A safe rule: invest only 2% of your total capital in one currency pair. If you want to trade 100,000 USD with a 1% margin requirement, you need 1,000 USD margin.

Step 7: Decide to Buy or Sell

BUY (Long): If you believe the quote currency will strengthen against the base

• Profit increases as the rate rises
• Loss occurs if the rate falls

SELL (Short): If you believe the quote currency will weaken

• Profit increases as the rate falls
• Loss occurs if the rate rises

Step 8: Add Risk Management Orders

Two important order types:

Stop Loss (Stop Loss): Automatically closes the position when the rate drops to a certain level. Helps limit losses.

Take Profit (Take Profit): Automatically closes the position when the rate reaches a target level. Locks in profits.

Example: EUR/USD is at 1.1128. You predict it will rise to 1.2000 then fall. You set a take profit order at 1.2000. When the rate hits this level, the order executes automatically.

Step 9: Monitor and Adjust Strategy

The forex market is highly volatile. Prices constantly fluctuate. Important points:

• Avoid emotional trading
• Continue researching and learning
• Stick to your strategy
• Be patient and wait for results

🎓 Factors Affecting the Forex Market

Central Banks

Central banks control the money supply. Quantitative easing (QE) or interest rate hikes significantly influence currency prices.

Economic News

Good economic data encourages investors to inject capital, increasing currency demand. If money supply does not increase correspondingly, the currency appreciates.

Market Sentiment

Traders often follow the crowd. If many believe a currency will rise, they buy, increasing demand and pushing the price up.

📈 Additional Information to Know

Daily Trading Volume

On average, about 5,000 billion USD are traded daily in the forex market, equivalent to 220 billion USD per hour.

Participants

• Governments and Central Banks: Manage foreign exchange, support the economy
• Commercial Banks: Support clients, conduct business
• Forex Brokers: Provide trading platforms
• Retail Traders: Account for nearly 1/3 of the volume, about 1,700 billion USD daily

This component shows millions of individual traders participate and profit daily from the market.

🎯 Conclusion

What is forex trading - It is an investment opportunity in the world’s largest financial market, with low entry costs, high transparency, and continuous profit potential. However, it also involves significant risks.

To succeed, you need to:

• Continuously learn and improve knowledge
• Develop a clear strategy
• Manage risks tightly
• Choose a licensed, reputable broker
• Be patient and disciplined in trading

Start with small capital, gain experience, and gradually increase your scale once skilled. The forex market is a long journey full of learning, not a short-term race.