Comprehensive Guide: What Is the Forex Market and How to Start Trading in 2025

1️⃣ Foreign Exchange and Forex Market - Basic Concepts

What is the forex market?

In recent years, the foreign exchange market has become one of the most attractive investment channels in Vietnam, attracting tens of thousands of curious traders to explore. However, many people still confuse the basic concepts of this field.

Forex (abbreviation of the Foreign Exchange Market) or foreign exchange market is a decentralized system where people can buy, sell, and exchange different types of currencies. This market operates without limits, with no physical center, but instead a global network connecting financial institutions, banks, and individual traders.

The concept of foreign exchange in practice can refer to:

• Foreign currencies: USD, EUR, AUD,…
• International payment tools: bank cards, bills of exchange, international checks,…
• International certificates: government bonds, international stocks,…
• Digital assets: Bitcoin, Ethereum,…
• Precious metals: gold and other precious metals
• Fiat currency: including domestic currency used in international transactions

However, when it comes to forex trading, individual investors usually focus on buying and selling currency pairs to capitalize on exchange rate fluctuations and profit.

Market Size and Importance

The Forex market is the largest financial market in the world, with an average daily trading volume of about 5.3 trillion USD. This figure is dozens of times larger than stock or bond markets, demonstrating its enormous importance in the global economy.

2️⃣ What Can You Trade on the Forex Market

Main Trading Instruments

The main commodity traded in the foreign exchange market is currencies, organized into pairs like EUR/USD, GBP/JPY, etc. The reason currencies are traded in pairs is because each forex transaction is essentially an exchange: you sell one currency to buy another.

The exchange rate between these pairs constantly changes due to economic, political, and market sentiment factors, creating countless profit opportunities for traders.

Structure of Currency Pairs

Any currency pair includes two main components:

Base Currency (Yết Giá Đồng) - the currency listed first in the exchange rate pair. It indicates its value relative to the second currency. For example, if EUR/USD = 1.1500, it means 1 EUR is worth 1.1500 USD.

Quote Currency (Đồng Định Giá) - the currency listed second, also called the counter currency or pip currency.

Major Forex Pairs

Although more than 30 major currencies are traded, a few pairs dominate, accounting for 85% of total market trading volume and having high liquidity. These are called major pairs:

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

These currencies include: USD (United States - US Dollar), EUR (European Union - Euro), JPY (Japan - Yen), GBP (United Kingdom - Pound Sterling), CHF (Switzerland - Franc), CAD (Canada - Canadian Dollar), AUD (Australia - Australian Dollar), NZD (New Zealand - NZ Dollar).

Other Assets Besides Forex

Many trading platforms, besides offering currency pairs, expand their product categories. Investors can trade stock indices, commodities (such as oil, gold), cryptocurrencies (Bitcoin, Ethereum), and other assets on the same platform.

3️⃣ How Does It Work: How to Invest in Forex?

Basic Principles

Forex investment is essentially predicting the direction of exchange rate movements between two currencies, then executing trades to profit from this difference.

The process is simple: you choose a currency pair (for example EUR/USD), predict whether it will go up or down, place a buy or sell order, wait for your prediction to come true, then close the position to lock in profit.

Real-life Example

Suppose you have 11,500 USD and want to trade EUR/USD. You buy 10,000 EUR at an exchange rate of 1.1500. Two weeks later, the rate rises to 1.2500 and you sell all your EUR. The result:

• You spent: 11,500 USD
• You received: 12,500 USD
• Profit: 1,000 USD

However, the interesting thing is that in forex trading, you do not need to put out the full 11,500 USD. Thanks to the leverage (leverage) tool, you only need to deposit a small margin, for example 60 USD with 200:1 leverage, to execute a trade of equivalent value.

The Two Sides of the Market

A key feature of forex is that you can profit from both rising and falling markets:

• Long (Buy): you expect the price to go up, so you buy first and sell later to make a profit
• Short (Sell): you expect the price to go down, so you sell first and buy back later to make a profit

4️⃣ Why Trade Forex? Outstanding Advantages

Extremely Low Trading Costs

Compared to other investment channels, forex eliminates most traditional intermediaries such as asset management fees or high brokerage fees. Forex brokers mainly earn from spread (the difference between bid and ask prices), which is a very small fee.

24/7 Market Operation

Forex operates 24/7 worldwide. You can trade anytime convenient for you - morning, afternoon, evening, or even while sleeping. This is ideal for those who want to earn extra income from the market without affecting their main job.

Market Manipulation-Free

The enormous size of the forex market (5.3 trillion USD daily), along with the participation of millions of institutions and individuals, makes it impossible for any entity, including central banks, to control or manipulate the market. This ensures relative fairness and transparency for all traders.

Leverage Power

Leverage is a powerful tool that allows you to control much larger amounts than your initial margin. If you deposit 1,000 USD with 100:1 leverage, you can trade worth 100,000 USD. This means your profits can be significantly amplified.

⚠️ Note: Leverage is a double-edged sword – it not only amplifies profits but also increases losses.

Low Entry Barriers

You only need a few hundred thousand VND as margin to start forex trading. This is completely different from other markets like stocks or real estate, where large investments are required.

5️⃣ Step-by-Step Guide: How to Start Trading Forex

Step 1: Master 8 Basic Concepts

Before entering the market, you need to understand the terms used daily:

Long - Buy with the expectation that the price will rise. Your profit increases when the exchange rate goes up.

Short - Short selling (sell first, buy later) with the expectation that the price will fall. Your profit increases when the exchange rate drops.

Leverage (Leverage) - A mechanism that allows trading with more money than you actually have. Expressed as ratios like 50:1, 100:1, 500:1. For example, if you have 1,000 USD and open a position of 500,000 USD, your leverage is 500:1.

Margin (Margin) - The amount you need to deposit with the broker to open and maintain a position. This amount is automatically locked from your account.

Pip - The smallest decimal point of the exchange rate. For example, if EUR/USD changes from 1.2000 to 1.2005, that’s 5 pips.

Spread - The difference between the bid (bid) and ask (ask) prices. This is how brokers earn money.

Lot (Trading Lot) - The volume of currency you want to buy or sell. Various sizes: nano (100 units), micro (1,000 units), mini (10,000 units), standard (100,000 units).

Position (Position) - The current status of your trade (open, closed, profit or loss).

Step 2: Understand Types of Forex Markets

There are many ways to trade forex:

Spot Forex - Direct trading on the spot foreign exchange market. Settlement occurs within 2 business days. This is the market where banks and large institutions participate. In Vietnam, this form is prohibited for individual investors.

Forex CFD - Contract for Difference (Contract for Difference) between two parties regarding the price difference of an asset. CFD allows speculation without owning the actual asset. This is the most common form in Vietnam (99% of platforms operate this way). CFD trading is not prohibited, but it’s recommended to choose platforms licensed by international authorities like ASIC, FCA, CySEC for safety.

Currency Futures - Futures contracts to exchange one currency for another at a fixed price on a future date. Less common in Vietnam.

FX Options - Forex options, giving the right to buy or sell at a fixed price. If guessed correctly, you profit; if wrong, you lose money. Not popular in Vietnam.

Currency ETFs - Exchange-traded funds tracking the relative value of a currency. Less common in Vietnam.

Conclusion: In Vietnam, you can trade forex in the form of CFDs through reputable, internationally licensed platforms.

Step 3: Choose a Reputable Trading Platform

The most important factor when choosing a platform is its credibility (licensed by international regulatory agencies). Additionally, consider:

• Trading fees and brokerage commissions
• Quality of trading platform and software
• Variety of tradable assets
• Customer service

Step 4: Open a Trading Account

A simple process requiring you to provide:

• ID card/CCCD (front and back)
• Email and phone number
• Bank account information
• Complete identity verification survey

Step 5: Select Currency Pairs to Trade

After opening an account, analyze and choose suitable currency pairs. Some factors to consider:

Economic Conditions - If you believe the US economy will weaken, USD will depreciate. You can sell USD to buy the currency of a stronger economy.

Trade Balance - Countries with strong exports will earn more foreign exchange, stimulating the economy and increasing their currency value.

Political Situation - Elections, monetary policies of central banks, or policy decisions significantly impact exchange rates.

Step 6: Determine Margin

Depending on the platform’s policy, you can deposit a small margin but trade large values. For example, a 1% margin allows trading of 100,000 USD with only 1,000 USD deposit.

Golden Rule: Only deposit a maximum of 2% of your capital for a single trade.

Step 7: Decide to Buy or Sell

Based on your analysis, decide:

BUY (LONG) if you believe the quote currency will strengthen against the base:

• Profit when exchange rate rises
• Loss when exchange rate falls

SELL (SHORT) if you believe the quote currency will weaken:

• Profit when exchange rate drops
• Loss when exchange rate rises

Step 8: Use Risk Management Orders

Orders are automatic instructions triggered when prices reach specific levels. Two important types:

Stop Loss - Automatically close the trade at a lower price to limit losses.

Take Profit - Automatically close the trade at a higher price to lock in target profit.

Example: EUR/USD is currently 1.11128. You predict it will rise to 1.2000 then fall. You place a limit sell order at 1.2000. When the price hits 1.2000, the sell order executes automatically.

Step 9: Monitor Your Positions

Most importantly, avoid emotional trading. Markets fluctuate constantly, but stick to your strategy. Continuously learn, analyze, and adjust your methods. Patience and discipline will ultimately lead to positive results.

6️⃣ Factors Affecting the Forex Market

Role of Central Banks

Money supply is controlled by central banks. Policy decisions like quantitative easing (inject more money into the economy) or tightening monetary policy significantly influence currency prices.

Economic and Financial News

Investors tend to invest in economies with good prospects. Positive economic news increases demand for that country’s currency, raising its value. Unless the money supply increases simultaneously, the supply-demand gap will push the currency higher.

Market Sentiment

Market sentiment, often linked to news, greatly impacts currency prices. If traders believe a currency will move in a certain direction, they will trade accordingly, potentially convincing others to follow, thus increasing or decreasing demand.

7️⃣ Forex Market Regulation Mechanism

The huge forex market has few regulations because there is no single overseeing authority operating 24/7. Instead, many national organizations supervise domestic forex service providers to ensure compliance with standards.

In the US, the two main agencies are:

• CFTC (Commodity Futures Trading Commission)
• NFA (National Futures Association)

8️⃣ Important Forex Market Statistics

Daily Trading Volume

Globally, about 5 trillion USD are traded daily in forex, averaging 220 billion USD per hour.

Market Participants

The market includes:

• Governments and central banks
• Major banks
• Forex brokers
• Retail investors (accounting for nearly 1/3 of the volume)

With a total of 5 trillion USD daily, retail traders conduct trades worth approximately 1.7 trillion USD daily.

Trading Structure

Speculators account for about 90% of trading volume, mainly focusing on USD, Euro, and Yen.

9️⃣ Conclusion

What is Forex? It is a decentralized, highly dynamic financial market where traders can profit from exchange rate fluctuations. With high transparency, low entry costs, and 24/7 opportunities, the forex market has become one of the most attractive investment channels worldwide.

Starting forex trading is not difficult but requires solid knowledge, a clear plan, and discipline. Keep learning, start with small capital, use risk management tools, and develop your own strategy. Success in the forex market takes time and effort, but the rewards can be very worthwhile.

Frequently Asked Questions

Is forex trading safe? Forex can be safe if you trade on platforms licensed by international regulatory agencies (ASIC, FCA, CySEC) and follow risk management principles.

Can I make steady money from Forex? Yes, but it requires skills, experience, and discipline. Not all traders profit; many lose money due to lack of understanding or poor risk management.

Is high or low leverage better? High leverage amplifies both profits and losses. Beginners should use low leverage to learn and better manage risks.

When should I trade? Depending on the currency pairs you choose. Major pairs have good liquidity 24/7, but the best time is when the market is most active, usually when large exchanges are open.