What is Fx Trading? An Overview of the Foreign Exchange Market and Investment Opportunities for Vietnamese Investors

Basic Concepts: Fx Trading (Foreign Exchange Trading) Is What?

Fx trading, also known as foreign exchange trading (Forex), is the activity of buying and selling different currencies on the global market. This is a financial market with enormous scale, where investors, businesses, banks, and financial institutions participate to exchange currencies for various purposes.

Unlike stock markets with centralized exchanges in each country, the foreign exchange market operates in a decentralized (OTC - Over The Counter) manner. This means there is no single physical location; instead, transactions occur between parties through brokerage firms and online trading platforms.

Market Size and Liquidity of the Forex Market

The foreign exchange market is the most liquid market worldwide. According to statistics from 2020, the average daily trading volume reached 6.6 trillion USD. This huge number of participants ensures that the Forex market cannot be manipulated by any organization or individual.

Because of its global scale, fx trading becomes an attractive choice for investors seeking a highly liquid and volatile financial market.

Who Are the Participants in the Foreign Exchange Market?

Initially, the Forex market was mainly a playground for large financial institutions, central banks, and import-export companies. They use foreign exchange to:

• Hedge against exchange rate fluctuations in international contracts
• Protect asset values during political instability
• Store value through safe currencies

However, as international trade developed and individual investors’ demand for investment increased, the Forex market gradually became a popular diversification tool. Although the trading volume of individual investors is still small compared to organizations, the number of people wanting to participate in fx trading is increasing.

Legal Status of Forex Trading in Vietnam

Current Situation

In Vietnam, the State still tightly manages foreign exchange reserves, so the licensing of foreign exchange trading is only granted to banks. Currently, no Forex trading platform is legally authorized in Vietnam.

Is It Illegal?

Important note: fx trading is not illegal, but it must be conducted through licensed brokers in countries that permit Forex trading. Individual investors are fully allowed to participate in foreign exchange trading for investment purposes.

However, if you trade through any broker claiming to be licensed by Vietnam, that is definitely illegal because the Vietnamese government does not allow the establishment of Forex brokerage companies.

Tax Issues

Currently, Vietnam does not have clear policies regarding taxes on income from foreign exchange trading. This also means that Forex trading remains a field with many unclear legal risks.

Most Commonly Traded Currency Pairs

According to the Bank for International Settlements (BIS) survey in 2019, the top 10 most traded currency pairs include:

EUR/USD - 24% of daily trading Influenced by interest rate decisions of the European Central Bank (ECB) and the US Federal Reserve (FED)

USD/JPY - 13.2% of daily trading Depends on interest rate decisions of the Bank of Japan (BoJ) and FED

GBP/USD - 9.6% of daily trading Affected by economic growth rates of the UK, US, and interest rate decisions of the Bank of England (BoE)

AUD/USD - 5.4% of daily trading Related to Australia’s mineral exports and interest rates of the Reserve Bank of Australia (RBA)

Other currency pairs such as USD/CAD (4.4%), USD/CNY (4.1%), USD/CHF (3.5%), USD/HKD (3.3%), EUR/GBP (2.0%), and USD/KRW (1.9%) are also actively traded.

Global Forex Trading Hours

The Forex market operates 24 hours a day but is divided into main trading sessions:

• New York Session: 20:00 - 5:00 (winter) / 19:00 - 4:00 (summer)
• London Session: 15:00 - 00:00 (winter) / 14:00 - 23:00 (summer)
• Sydney Session: 4:00 - 13:00 (winter) / 5:00 - 14:00 (summer)
• Tokyo Session: 6:00 - 15:00 (all year round)

Different currency pairs will have varying volatility depending on the trading session. For example, AUD will be more volatile when the Sydney session opens, while European pairs will be more active during the London session.

Important Economic Data Affecting Forex

1. Central Bank Interest Rate Decisions

Interest rates are considered the “price of money.” Raising interest rates makes that currency more attractive (appreciate), while lowering rates has the opposite effect. This is the most immediate factor influencing price fluctuations.

2. Gross Domestic Product (GDP)

GDP reflects the economic health of a country. When GDP exceeds expectations, the currency tends to appreciate; when GDP is below expectations, the currency depreciates.

3. Consumer Price Index (CPI) and Inflation

CPI and inflation indicate the purchasing power of money. High indices lead to upward pressure on interest rates, which in turn impact currency prices.

4. Unemployment Rate

Low unemployment usually suggests a healthy economy, potentially leading to higher interest rates. The two key US statistics are ADP and NFP, released monthly.

5. Announcements from the US Federal Open Market Committee (FOMC)

Each month, the FOMC meets to decide interest rates. Post-meeting economic statements can cause significant market volatility. For example, on March 18, 2015, the EUR/USD pair surged 400 pips within minutes after the meeting.

How to Start Forex Trading

Basic Steps

If you decide to participate in fx trading, the process generally includes:

1. Choose a trading platform - Find a reputable broker licensed in countries that permit Forex
2. Create an account - Register online with options for a demo account or a real account
3. Select the market - Decide on currency pairs or financial instruments you want to trade
4. Determine your position - Choose to go long or short based on your price forecast
5. Manage risk - Set position size, take profit, stop loss
6. Execute the trade - Place the order

( Criteria for Choosing a Broker

When selecting a trading platform, check:

• Reputation and security
• Trading costs )commission, spread(
• Deposit/withdrawal methods
• Trading platform quality
• Order execution speed
• Customer support services
• Operating license from authorized agencies

Important Considerations Before Participating

) Opportunities and Challenges

The Forex market offers great opportunities with high liquidity, flexible trading hours ###24/5(, and enormous trading volume. However, it is also a highly volatile market, requiring deep knowledge of technical analysis, econometrics, and risk management.

) Legal Risks in Vietnam

Since Vietnam has not fully legalized foreign exchange trading, investors should:

• Choose brokers licensed abroad
• Completely avoid “Vietnamese trading platforms” claiming to be legal ###definitely scams(
• Understand that while trading is not illegal, it remains an unregulated field

) Essential Skills

To succeed in fx trading, you need:

• Knowledge of technical and fundamental analysis
• Risk and capital management skills
• Patience to learn and emotional control
• Habit of updating economic news

Conclusion

Fx trading is a global financial market full of potential but also significant risks. For Vietnamese investors, the main goal is to choose reputable, licensed brokers and equip themselves with comprehensive knowledge before starting. The foreign exchange market is not a quick way to get rich but a long-term investment tool for those willing to learn and manage risks professionally.