## What is Forex? Why Does the Forex Market Attract Vietnamese Investors?

The foreign exchange market (Forex) has existed for centuries, closely linked to international trade activities. However, for many Vietnamese investors, Forex remains a relatively new field. The question is: **What is the nature of this market?** and **Should you participate or not?**

This article will help you understand the global foreign exchange market as well as the legal issues involved in trading Forex in Vietnam.

## How Does the Forex Market Operate?

The foreign exchange market is a decentralized trading system, without a centralized exchange like the stock market. Instead, investors execute trades through international brokerage firms on the OTC (Over-The-Counter) market.

### Market Size and Liquidity of Forex

Forex is the most liquid financial market worldwide. According to statistics from 2020, the average daily trading volume reached $6.6 trillion. This large scale is the reason why the foreign exchange market cannot be manipulated and always attracts investors.

### Who Participates in the Forex Market?

Initially, Forex was a playground for financial institutions, central banks, and import-export companies. They use foreign exchange trading to hedge against price volatility, hedge inflation, or protect asset values amid political instability.

With the development of international trade, Forex has gradually become an investment tool for individual investors. Although the trading volume of individuals remains small compared to organizations, the market's attractiveness—high liquidity and volatility—is increasingly drawing more individual investors.

## Most Commonly Traded Currency Pairs

According to the Bank for International Settlements (BIS) survey in 2019, the EUR/USD pair leads with 24% of daily trading volume. Next are USD/JPY (13.2%) and GBP/USD (9.6%).

### Top 10 Most Traded Currency Pairs

| Currency Pair | % of Trading Volume | Influencing Factors |
|---|---|---|
| EUR/USD | 24% | ECB and FED interest rate decisions |
| USD/JPY | 13.2% | BoJ and FED interest rate policies |
| GBP/USD | 9.6% | UK-US economic growth, BoE interest rate decisions |
| AUD/USD | 5.4% | Mineral exports, RBA interest rates |
| USD/CAD | 4.4% | Oil prices and Canadian economy |
| USD/CNY | 4.1% | US-China economic growth |
| USD/CHF | 3.5% | Global economic conditions |
| USD/HKD | 3.3% | Pegged exchange rate with USD |
| EUR/GBP | 2.0% | UK-Europe economic relations |
| USD/KRW | 1.9% | South Korea's economic development |

## Forex Trading in Vietnam: Legal Issues

### Current Situation

In Vietnam, the government tightly controls foreign exchange reserves, so the right to conduct foreign exchange transactions is only granted to banks. Forex trading through online platforms is not legally permitted. For this reason, you will not find any Forex trading platforms established within Vietnam.

### Is It Illegal?

This is a question many people are concerned about. The answer is not simple.

The government does not license the establishment of Forex trading platforms, **which does not mean** that foreign exchange trading is illegal. Individual investors can freely trade Forex for investment purposes.

However, if you trade through a "licensed" brokerage company in Vietnam, that is definitely a violation of the law, because Vietnam does not permit the establishment of Forex brokerage companies.

**Conclusion:** To participate in Forex safely, choose reputable international brokerage firms licensed by securities commissions or authorized organizations in countries where forex trading is permitted.

### Tax Issues

Currently, Vietnam has no clear policy allowing Forex trading, so there are no regulations on personal income tax from this activity. However, since it is not officially permitted in Vietnam, it carries high risks.

## Important News Impacting Forex

### Five Main Factors Affecting the Market

**1. Central Bank Interest Rate Decisions**

Interest rates are considered the "price of money." Raising interest rates = currency appreciation. Lowering interest rates = currency depreciation. This is the most important information, immediately impacting price fluctuations of currency pairs.

**2. Gross Domestic Product (GDP)**

When GDP falls below expectations, the currency tends to weaken. Conversely, when GDP exceeds expectations, the currency tends to strengthen.

**3. Consumer Price Index (CPI) and Inflation**

CPI and inflation are indirect measures of currency value. Central banks use these indicators to decide interest rates. High CPI or inflation often leads to interest rate hikes to curb inflation.

**4. Unemployment Rate**

This is an indirect indicator but influences the central bank's interest rate decisions. Rising employment leads to higher interest rates. Two key US data points are ADP and NFP, released monthly.

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

FOMC meetings are held monthly to set the open market interest rate, followed by statements on economic conditions. FOMC meetings can cause significant market volatility. For example, on March 18, 2015, EUR/USD surged 400 pips within minutes after negative comments on USD.

## Forex Trading Hours

The Forex market operates 24 hours a day, 5 days a week, thanks to the connection of four main trading centers:

| Trading Center | Opening Hours (Winter) | Opening Hours (Summer) |
|---|---|---|
| New York | 20:00 - 5:00 (+1) | 19:00 - 4:00 (+1) |
| London | 15:00 - 0:00 | 14:00 - 23:00 |
| Sydney | 4:00 - 13:00 | 5:00 - 14:00 |
| Tokyo | 6:00 - 15:00 | 6:00 - 15:00 |

Each currency pair experiences different volatility depending on which market is open. For example, when Sydney opens, AUD tends to fluctuate more strongly. When London opens, European currency pairs have more trading opportunities.

## Should You Participate in Forex or Not?

### Points to Consider

**Advantages:**
- Highest liquidity among financial markets
- Operates 24/5, convenient for global investors
- High volatility creates many profit opportunities
- Can trade with leverage

**Risks:**
- Legal issues in Vietnam are still unclear
- High risk of capital loss, especially when using leverage
- Requires in-depth knowledge of technical and fundamental analysis
- Potential exposure to scam brokers

### How to Choose a Reputable Broker

If you decide to participate in Forex, select a reputable international broker based on these criteria:

- **Reputation and Security:** Licensed by reputable regulatory bodies (ASIC, CMA, CIMA, etc.)
- **Trading Costs:** Compare spreads, commissions, withdrawal fees
- **Trading Platform:** User-friendly interface, comprehensive analysis tools
- **Order Execution Speed:** Fast execution, especially during volatile periods
- **Customer Support:** 24/7 support, preferably with Vietnamese language

### Steps to Open a Trading Account

1. Create an online account (choose demo account or real account)
2. Find the market you want to trade (e.g., EUR/USD, gold, etc.)
3. Open buy or sell positions based on your analysis
4. Set position size, take profit, stop loss
5. Confirm the trade

## Conclusion

The Forex market is the largest global investment opportunity with the highest liquidity. However, in Vietnam, you need to understand the legal issues carefully and choose reputable brokers licensed internationally. Forex is not a quick way to get rich but a trading channel that requires knowledge, skills, and good risk management.

Start with a demo account to understand the market mechanism before investing real money.