What is Foreign Exchange? A Comprehensive Guide to the Forex Market for Vietnamese Investors

The forex market has been operating for decades as an indispensable part of the global financial system, but for many Vietnamese investors, it remains a relatively unfamiliar field. The question many ask is: What exactly is Forex? Does it relate to investment? And should I participate? The following article provides a comprehensive overview of the foreign exchange market, helping you better understand this largest investment channel on the planet.

What Is Forex? Exploring the Nature of the Foreign Exchange Market

What is Forex in the context of the financial market? Besides being the name of the foreign currency trading market, Forex also represents a massive financial system with extremely high liquidity.

Unlike stock markets, which are concentrated on specific exchanges in each country, the foreign exchange market is decentralized worldwide. Currency transactions occur on the OTC (Over-the-Counter) system, connecting investors, banks, and financial companies from around the globe. This is why investors wishing to participate in Forex must go through international brokerage firms.

Scale and Liquidity of the Market

Forex is the largest trading volume market globally, with liquidity surpassing any other financial market. According to statistics from 2020, the daily trading volume on the Forex market reached $6.6 trillion. With such a large number of participants, the foreign exchange market is almost impossible to manipulate or artificially control.

Market Participants

Initially, Forex was an exclusive playground for large organizations such as central banks, multinational financial corporations, and import-export businesses. They use this market to hedge against exchange rate fluctuations, prevent inflation risks, and store value during political instability.

As the investment demand from individual investors increased and international trade expanded, Forex gradually became a popular diversification tool. Although the trading volume of individual investors remains small compared to large organizations, the high liquidity and strong price volatility of Forex are increasingly attracting more individuals to participate.

Legal Issues: Trading Forex in Vietnam Is It Illegal?

To answer whether Forex trading is illegal in Vietnam, it is necessary to understand the State’s foreign exchange management policies.

Currently, the Vietnamese government maintains strict control over foreign reserves, and foreign exchange transactions are only permitted for commercial banks. The establishment of Forex trading platforms in Vietnam is not authorized by the State, and you will not find any legally registered Forex platforms in Vietnam.

However, it is important to clarify that: the lack of licensing for a trading platform does not mean Forex trading is illegal.

Individual investors are fully entitled to trade Forex for investment purposes. As long as you participate through international brokerage companies licensed by authorized legal entities abroad (not in Vietnam), there are no legal issues.

Important warning: If you trade Forex through any broker claiming to be “licensed by Vietnam” to operate Forex, that is definitely a scam because the Vietnamese government does not issue licenses for such activities. To trade safely, choose international brokers officially licensed by reputable securities regulators.

Tax Issues When Trading Forex

According to current Vietnamese law, foreign exchange trading is still not permitted. Therefore, the government has not issued any tax policies related to individual Forex transactions.

Since Forex trading is not legally allowed in Vietnam, questions about personal income tax do not arise. However, this also means that when you participate in Forex trading, you must accept certain risks related to this legal gap.

Most Traded Currency Pairs

Not all currency pairs are equally popular in the Forex market. According to the Bank for International Settlements (BIS) survey in 2019, some prominent pairs include:

EUR/USD leads with over 24% of daily trading volume. This pair is heavily influenced by the interest rate decisions of the European Central Bank (ECB) and the Federal Reserve (FED).

USD/JPY accounts for 13.2%, reflecting the relationship between the Japanese Yen and the US Dollar, mainly affected by the monetary policy of the Bank of Japan (BoJ).

GBP/USD ranks third with 9.6%, depending on the economic growth rates of the UK and US, along with the Bank of England’s interest rate decisions.

Top 10 Most Traded Currency Pairs

Economic News Impacting the Forex Market

To succeed in Forex trading, investors need to monitor key economic information. Although each currency has its own influencing factors, five key pieces of information impact all currency pairs:

1. Central Bank Interest Rate Decisions

Interest rates are considered the “price of money.” When a central bank raises interest rates, the currency’s value tends to increase, and vice versa. This is the most critical information, causing immediate fluctuations in currency prices.

2. Gross Domestic Product (GDP)

GDP directly affects currency value. When GDP falls below expectations, the currency tends to weaken. Conversely, when GDP exceeds expectations, the currency attracts investors.

3. Consumer Price Index (CPI) and Inflation

CPI and inflation are indirect measures of currency value. Central banks use these indicators as references. High inflation often leads to interest rate hikes to control it.

4. Unemployment Rate

Although indirectly, the unemployment rate is a key indicator used by central banks to decide monetary policy. Higher employment usually pressures interest rates upward. The US releases two important figures monthly: ADP and NFP.

5. Federal Open Market Committee (FOMC) Announcements

The FOMC meets monthly to set interest rates and releases statements on the economic outlook and monetary policy effectiveness. FOMC meetings can cause significant market volatility—for example, on March 18, 2015, the EUR/USD surged 400 pips within minutes.

Forex Trading Hours

The Forex market operates 24 hours a day, 5 days a week, with four main trading sessions from the world’s largest financial centers:

Each session has its own characteristics. The Sydney session often sees strong movements in AUD, while the London session highlights European currency pairs. Through trading platforms, you can access all four sessions without needing separate accounts, enabling continuous trading without interruption.

How to Open a Forex Trading Account

Since Vietnam has not authorized the establishment of Forex trading platforms, you will need to open an account with an international broker licensed in countries where such activities are permitted.

When choosing a broker, evaluate based on these criteria:

• Reputation and security: Verify licenses from international securities regulators
• Trading costs: Compare commissions, spreads, and other fees
• Deposit/withdrawal flexibility: Speed and ease of fund transfers
• Trading platform: User-friendly interface, comprehensive analysis tools
• Order execution speed: Fast trade execution
• Customer support: Vietnamese language support, responsiveness

The typical account opening process includes:

Step 1: Register online (choose demo or real account)

Step 2: Verify identity and complete profile

Step 3: Deposit funds into the account

Step 4: Select the market to trade (Forex is among them)

Step 5: Set buy or sell positions, determine size, take profit, stop loss

Step 6: Confirm and execute the trade

Should You Trade Forex? Important Considerations

What is Forex is not just about the definition but also whether it is a suitable investment channel for you.

Key points to consider:

Potential Benefits: Forex is the largest financial market with the highest liquidity, where every economic piece of information can create profit opportunities through price fluctuations. With leverage tools, investors can control large positions with small capital.

Risks and Challenges: Legal issues remain a major concern. Although trading Forex abroad is not illegal, the legal gap in Vietnam poses certain risks. Additionally, high leverage means high risk of losses. Forex requires solid knowledge, experience, and strong psychological resilience.

Conclusion:

If you decide to participate in Forex, remember that the most important thing is to choose a reputable, legally licensed international broker. Start with a demo account, learn the knowledge, develop your own strategy, and only switch to a real account with an amount that matches your risk tolerance.