Online Foreign Exchange Trading: What You Need to Know Before You Start

Have you ever wondered why people pursue foreign exchange trading? The answer is very simple: with the development of financial technology, foreign exchange trading is no longer the exclusive domain of large banks or professional traders. Today, anyone can participate in this market from their home.

What Is Foreign Exchange? Why Do You Need to Trade?

Every country has its own currency, controlled by the government’s monetary authority. Money is not only a payment tool but also reflects the economic strength of a nation.

Foreign currency is the money issued by countries other than Vietnam. Every day, millions of people need foreign currency for various reasons: traveling abroad, paying for international goods and services, overseas work, or simply to protect assets against inflation.

In foreign exchange transactions, there is always a currency pair — for example, USD/VND, EUR/USD, or JPY/GBP. The exchange rate differences between these pairs create profit opportunities for millions of investors worldwide.

The Current Vietnamese Foreign Exchange Market Landscape

About 50 years ago, when Vietnam opened up trade, the demand for foreign currency surged. At that time, only state banks were allowed to trade foreign exchange, with Vietcombank leading.

But the world has changed. Over the past 10 years, the involvement of private banks has transformed the foreign exchange market into a vibrant “playground.” Banks must continuously trade with each other to ensure foreign currency supply for customers, thereby maintaining exchange rate stability.

The amazing part is: buying and selling foreign currency is no longer as difficult as before. Besides commercial banks, private foreign exchange businesses are also permitted to operate, helping to facilitate a strong flow of foreign exchange among the population.

But the real “blockbuster” is the emergence of digital technology applications. They have broken down barriers to entry, making it easier for retail investors to access the international forex market. Opportunities have opened up.

Are You Allowed to Trade Foreign Exchange in Vietnam?

The answer is yes, but with conditions.

According to regulations from the State Bank of Vietnam, Vietnamese citizens are allowed to buy and transfer foreign currency abroad for legitimate purposes such as:

• Tourism, studying, medical treatment abroad
• Business trips, visiting family
• Paying fees and charges to foreign entities
• Supporting family members abroad
• Inheriting or relocating abroad

To do so, you need to provide sufficient proof of your intended use to the bank.

Conversely, selling foreign currency to individuals or businesses can only be performed by:

• Commercial banks
• Credit institutions
• Foreign exchange trading registered and licensed by the State Bank

Common Forms of Foreign Exchange Transactions

Direct Buying and Selling

This is the simplest form, occurring daily at banks and foreign exchange businesses. You need a certain amount of dollars or euros, go buy, exchange Vietnamese dong, and receive foreign currency. Done.

It’s suitable for those needing foreign currency for short-term travel, study, or work.

Currency Conversion and Swap

Currency conversion = exchanging one type of currency for another at the current exchange rate.

Currency swap = you buy foreign currency now but commit to sell the same amount at a future date at an agreed rate. It’s like “locking in” the exchange rate to avoid risks.

Forex Trading (Forex Trading)

This is where foreign exchange business becomes a “game” — offering both high profit opportunities and high risks.

Forex traders buy and sell foreign currencies frequently to:

• Profit from price differences
• Hedge against exchange rate risks
• Speculate on market trends

Main trading tools include:

Spot Market (Immediate Settlement)

• Buy foreign currency at an agreed price
• Pay immediately or within 2 business days
• Simple, clear, less complicated

Forex CFDs (Forex CFD)

• You don’t need to own the actual foreign currency
• Just predict the direction of the exchange rate to profit
• Allows “short selling” — profit when rates fall
• Most dangerous due to leverage (leverage)

Futures Contracts (Futures)

• Commit to buy/sell foreign currency at a fixed date in the future
• Price is locked in at the signing date
• Helps import-export businesses plan costs

Options (Options)

• You have the right (not obligation) to buy or sell foreign currency at an agreed rate
• Limit potential losses
• Ideal for cautious investors

Currency ETF (Currency ETF)

• Funds tracking the value of a currency or basket of currencies
• Safer than direct trading
• Minimize risks

How to Start Foreign Exchange Trading: Step-by-Step Guide

Step 1: Understand Your Risk Appetite

Most important: How much are you willing to lose?

Before investing any money, you need to answer this question. All investment forms carry risks. If you don’t set a loss limit proactively, you could lose both principal and gains.

Step 2: Find a Reputable Trading Platform

You need a platform that:

• Is legally licensed
• Has strong account protection measures
• Has an easy-to-use interface and good customer support

Currently, many reputable forex brokers offer mobile apps or web platforms.

Step 3: Determine Margin Capital

Most trading platforms require you to deposit money into a margin account (margin account) — this is collateral to enable trading.

Key point: Many platforms offer leverage (leverage) — allowing you to trade with a multiple of your actual capital.

For example: Deposit $100, but with 1:100 leverage, you can trade as if you have $10,000. This can help you earn 100 times… or lose 100 times.

Step 4: Choose Currency Pairs to Trade

Not all pairs are good. You need to analyze before deciding.

Three Main Factors Affecting Exchange Rates:

1. Interest Rate Differentials

• Central banks control interest rates
• High interest rates → attract foreign capital → exchange rate rises
• Low interest rates → capital outflow → exchange rate falls

However, high inflation combined with high interest rates can offset this effect.

2. Inflation Rate Differentials

• Countries with low inflation → currency appreciates (strong purchasing power)
• Countries with high inflation → currency depreciates

Japan, Germany, Switzerland have historically had the lowest inflation, making their currencies very strong.

3. Political Stability and Economic Health

• Investors prefer stable countries
• Political instability → investors flee → currency depreciates

Besides these three factors, other variables like current account deficits or trade exchange rates exist but are too “macro” for daily monitoring.

Mainly traded currency pairs (most traded):

• USD/EUR (US Dollar / Euro)
• GBP/USD (British Pound / US Dollar)
• USD/JPY (US Dollar / Japanese Yen)
• AUD/USD (Australian Dollar / US Dollar)
• NZD/USD (New Zealand Dollar / US Dollar)

Most trading platforms offer 50-100+ currency pairs to choose from.

Step 5: Analyze Trends and Choose Suitable Tools

Once you’ve selected a currency pair, the next step is predicting the trend.

For example: If you believe the Japanese Yen will weaken against the US Dollar, you can:

• Buy USD/JPY directly (profit if the rate increases)
• Short USD/JPY via CFD (profit if the rate decreases)
• Buy put options (put options) if the rate drops###

Each tool has its own advantages and disadvantages.

( Step 6: Monitor and Adjust Your Strategy

Forex trading is not “set and forget.” Exchange rates change every second, and unexpected economic or political news can reverse the trend in an instant.

You need:

• Constantly update information about the countries you trade
• Stick to your established strategy )don’t panic and quit when prices rise slightly, or become overly greedy when in profit
• Control risks by setting stop-loss and take-profit orders
• Continuously learn from previous trades

Conclusion: Opportunities and Challenges

Foreign exchange trading is not new. This market has existed for centuries, serving international merchants. But with modern technology, it has entered a new era.

In the past, only large banks and professional traders could access it. Today, anyone — from students to office workers — can open a trading account with just a smartphone.

Technology has democratized access to global financial markets.

But, opportunities always come with challenges. High profits also mean high risks. If you don’t understand what you’re doing, you could lose quickly.

Start by learning genuinely, understanding the factors influencing exchange rates, setting loss limits, and most importantly — only use money you can afford to lose.

Therefore, be a wise investor: acquire knowledge, control your emotions, and always remember that in foreign exchange trading, the only person you can truly control is yourself.