Decoding the Foreign Exchange Market: From Fundamentals to Trading Practices in Vietnam

What Is Forex Trading? Essential Basics You Need to Know

The foreign exchange market has been operating for centuries, closely linked to international trade, but for Vietnamese investors, it remains a relatively new field. Many questions arise: What exactly is the Forex market, should I participate, and are there any legal requirements to comply with?

The foreign exchange market is global – it is not centered on a single exchange in each country like traditional stock markets. Instead, it is a decentralized (OTC) market where investors access through international brokerage firms.

Size and Liquidity of the Market

Forex is the most liquid market worldwide. According to data from the Bank for International Settlements (BIS) in 2020, the average daily trading volume reached 6.6 trillion USD. This enormous scale ensures that the market cannot be manipulated by individual actors.

Market Participants

Initially, Forex was a playground for financial institutions, central banks, and import-export companies. They used this tool to hedge against exchange rate fluctuations, protect against inflation, and preserve value during political instability.

Today, as international trade increases and individual investors diversify their portfolios, Forex has become a more attractive tool. Although individual trading volume is still lower than that of organizations, the participation trend is steadily rising.

Forex Trading in Vietnam: Legal Issues

Current Legal Status

Vietnamese authorities tightly regulate foreign exchange reserves, only licensing banks to conduct transactions. Currently, there are no legal Forex trading platforms in Vietnam. However, this does not mean that foreign exchange trading is illegal.

Individual investors are fully permitted to engage in forex trading as an investment tool. The compliance method is: trading through internationally licensed brokerage companies authorized in countries where such activities are permitted.

Important note: If trading through a brokerage “licensed by Vietnam,” it is illegal because Vietnam does not license any Forex brokerage companies.

Major Currency Pairs in the Market

According to a survey by the Bank for International Settlements in April 2019, the most traded currency pairs are:

Economic Factors Affecting Price Volatility

Five key economic news items directly impact all currency pairs:

1. Central Bank Interest Rate Decisions
Interest rates are considered the “price” of a currency. Raising rates → currency appreciation; lowering rates → currency depreciation. This is the most immediate influencing factor.

2. Gross Domestic Product (GDP)
GDP exceeding expectations → currency tends to strengthen; GDP below expectations → currency tends to weaken.

3. Consumer Price Index (CPI) and Inflation
These indicators help central banks decide on interest rates. High CPI or inflation → increase interest rates to control inflation.

4. Unemployment Rate
This indirectly influences rates through policy decisions. Rising employment → likely rate hikes. The two most important data points are the US ADP and NFP reports (released monthly).

5. FOMC Announcements (U.S. Federal Open Market Committee)
Monthly meetings where FOMC sets interest rates and comments on economic conditions. These meetings can cause significant volatility – for example, on 18/3/2015, EUR/USD surged 400 pips within minutes after the FOMC announcement.

Optimal Trading Hours

The Forex market operates 24 hours a day, 5 days a week, divided into 4 main sessions:

Each session has different characteristics. For example, the Sydney session is suitable for trading AUD, while the London session (15:00-0:00) is the most volatile period when European currency pairs are actively traded.

How to Open a Trading Account

Vietnam currently has over 100,000 online trading platforms, including reputable ones and scams. When choosing, you should evaluate:

• Reputation and security: Check licenses and certificates from international regulatory agencies
• Trading costs: Compare commissions and spreads
• Deposit/withdrawal process: Speed and fees
• Trading platform: Interface, analysis tools, stability
• Order execution speed: Critical during volatile markets
• Customer support: Service quality

Basic steps to open an account:

1. Create an online account (choose demo or real account)
2. Select the market/tool to trade
3. Open buy or sell positions
4. Set position size, take profit, stop loss
5. Confirm the transaction

Taxation on Forex Trading Income

Currently, Vietnam does not have policies allowing Forex trading, so there are no personal income tax issues involved. However, this is a legally unclear area in Vietnam, and participation carries high risks.

Should You Trade Forex? Final Considerations

Advantages: Forex is the largest market in the world with the highest liquidity. Global economic news creates continuous trading opportunities. High liquidity causes strong price movements, offering many profit opportunities.

Challenges: Legal issues are the most critical factor in decision-making. Although individual trading is not illegal when conducted in compliant countries, Forex platforms operated within Vietnam are definitely illegal.

If you decide to participate, the most important thing is to choose a trading partner licensed legally in countries where Forex activities are permitted, ensuring peace of mind and avoiding legal risks.

The foreign exchange market remains an attractive investment channel, but understanding its nature and complying with legal regulations are prerequisites for success.