Explore the Forex Market: From Basic Concepts to First Steps

📚What Is Forex? An Introduction to Forex from a Basic Perspective

In recent years, the interest of Vietnamese investors in forex trading has been increasing. However, many people still confuse what forex actually is.

###Definition of Forex and the Forex Market

According to definitions from international financial organizations, forex can include:

Types of Forex:

• Foreign currencies such as USD, EUR, AUD
• International payment tools (bank cards, money transfer checks)
• International certificates (bonds, foreign company stocks)
• Digital assets (Bitcoin, Ethereum)
• Precious metals and currencies used in international payments

When referring to the forex market (Forex or FX), we are talking about a global decentralized trading platform where investors can buy, sell, and exchange different currencies with each other. This market operates with an average daily trading volume of 5.3 trillion USD—a huge figure far exceeding stock or bond markets.

###What Is Forex Trading?

Forex trading fundamentally involves buying and selling currency pairs to capitalize on exchange rate fluctuations. Unlike central banks trading to stabilize the economy, individual investors participate solely to profit from exchange rate differences.

💱What Do You Trade on the Forex Market?

###Currency Pairs: The Main Trading Units

The primary commodity in the forex market is currency, traded in pairs. For example, EUR/USD—Euro of the European Union and US Dollar. Since exchange rates between currencies constantly fluctuate due to various economic and geopolitical factors, the market offers endless trading opportunities.

###Core Concepts of Exchange Rates

Base Currency (Quote Currency): The currency on the left of the pair, representing its value relative to the other currency. For example, EUR/USD at 1.1500 means 1 EUR = 1.1500 USD.

Quote Currency (Counter Currency): The currency on the right of the pair, also called the counter currency or pip currency.

###Major Currency Pairs in the Market

Although over 30 major currencies are traded, only a few pairs account for about 85% of the market value with very high liquidity—these are the major currency pairs:

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

###Other Assets Available on Trading Platforms

Besides forex, reputable trading platforms offer a variety of assets such as Stock Indices, Commodities, Gold, and Cryptocurrencies.

🎯How Forex Investment Works

###Basic Principles

Forex investment is based on predicting exchange rate trends. If you predict EUR/USD will rise, you place a buy order. When the rate actually increases, you sell to profit from the difference.

Two-way Market: You can buy when you believe prices will go up, and also short sell when you expect prices to fall.

###Real Example of Forex Trading

Suppose you have 11,500 USD:

• Step 1: Buy 10,000 Euros at EUR/USD = 1.1500
• Step 2: Two weeks later, the rate rises to 1.2500
• Step 3: Sell 10,000 Euros, receive 12,500 USD
• Result: Profit of 1,000 USD from the 0.1 difference

###The Power of Leverage

A prominent feature of forex is the leverage (Leverage) tool. Instead of investing 11,500 USD, you only need to deposit a small margin—for example, with 200:1 leverage, about 60 USD is enough to open a position.

Note: Leverage is a double-edged sword—it can amplify profits but also losses.

✨Advantages of Learning About Forex and Participating in Trading

###Very Low Trading Fees

Forex eliminates intermediaries like asset management fees or brokerage commissions. Brokers only earn from the spread (the difference between bid and ask prices), which is usually very small.

###Market Operates 24/7

Unlike stock markets with limited trading hours, forex runs 24 hours worldwide. This allows traders to participate according to their schedule—morning, afternoon, evening, or even during sleep.

###Market Cannot Be Manipulated

With its enormous scale and countless participants, no individual, organization, or even central bank can control the entire market. This ensures transparency and fairness.

###Leverage Advantage

Compared to other investment channels, forex allows trading large amounts with small capital. You can earn profits hundreds of times your margin.

###Low Entry Barriers

Starting with just a few hundred thousand VND, you can begin trading. No other financial market—stocks, real estate, or commodities—offers such low entry thresholds.

🚀8 Steps to Start Forex Trading

###Step 1: Master 8 Basic Concepts

To trade effectively, understand core terms:

Long: Buying, expecting the price to rise for higher selling. Profits increase as the market goes up.

Short: Selling short, expecting the price to fall. Profits increase as the market declines.

Leverage (Leverage): Trading with a larger volume than your current capital, expressed as ratios like 50:1, 100:1, 500:1.

Margin (Margin): The amount you deposit with the broker to open and maintain a position.

Pip (Point): The smallest change in exchange rate, measured in thousandths. For example, EUR/USD from 1.2000 to 1.2005 equals 5 pips.

Spread (Bid-Ask Difference): The difference between the bid price (bid) and the ask price (offer), measured in pips. This is the broker’s income.

Lot (Lot): The quantity of currency units traded, from nano (100 units) to standard lot (100,000 units).

Slippage (Price Slippage): The difference between the expected price when placing an order and the actual executed price.

###Step 2: Understand Types of Forex Markets

Spot Forex Market (Immediate Settlement Market): Trading at agreed prices with settlement immediately or within 2 days. Mainly banks and financial institutions. In Vietnam, this market is prohibited.

Forex CFD (Contract for Difference): An agreement between two parties on the price difference of an asset (foreign currency, index, stock). CFDs allow speculation easily without owning the actual asset. This is the most common form in Vietnam (99% of Forex platforms). CFD trading is not banned, but choose licensed brokers from international authorities like ASIC, FCA, CySEC.

Currency Futures (Futures Contract): An agreement to exchange currencies on a specific future date at a predetermined price. Not common in Vietnam.

Currency Options (FX Options): Tools that allow predicting whether an asset’s price will rise or fall relative to a fixed level. Correct prediction yields profit, wrong results in loss. Not common in Vietnam.

Currency ETFs: Exchange-traded funds tracking the relative value of a currency against USD or other currencies. Not common in Vietnam.

###Step 3: Choose a Reputable Trading Platform

Criteria for selecting a forex broker:

• Credibility (licensed by international authorities)
• Low trading fees
• Competitive brokerage commissions
• Diverse trading products
• User-friendly software platform

###Step 4: Open a Forex Account

To open an account, provide:

• ID card (front and back)
• Email and phone number
• Bank account details

###Step 5: Determine Which Currency Pairs to Trade

After opening an account, analyze and select currency pairs. Consider factors such as:

Economic Outlook: If the US economy weakens, USD will be affected. You might sell USD to buy currencies of stronger economies.

Trade Position: Countries with high demand for their exports will have trade advantages, stimulating economic growth and currency appreciation.

Political Situation: Political events like elections can impact currencies. If new leaders tighten monetary policy with high interest rates, the currency may appreciate.

###Step 6: Decide on Margin Amount

Depending on broker policies, you can trade large sums with small deposits. For example, with a 1% margin requirement on a 100,000 USD trade, you only need 1,000 USD.

Golden Rule: Only invest about 2% of your total capital per trade.

###Step 7: Decide to Buy or Sell

Once the market is chosen, check current prices and place orders.

Buy currency pairs when you believe the bid price will strengthen:

• Profits increase with each upward price movement
• Losses occur if the price drops below your entry point

Sell currency pairs when you believe the bid price will weaken:

• Profits increase with each downward movement
• Losses occur if the price rises above your entry point

###Step 8: Add Risk Management Orders

Orders are automated instructions set for future execution when prices reach certain levels.

Stop Loss (Stop-Loss Order): Close the trade if the price drops below the current market to minimize losses.

Take Profit (Limit Order): Close the trade when the price rises above the current level to lock in profits.

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

###Step 9: Monitor and Adjust

Most importantly, avoid emotional trading. Forex markets fluctuate constantly, with frequent price swings. Stick to your strategy, continue learning, and eventually, you will see profits.

🔍Factors Affecting the Forex Market

###Central Banks

Money supply is controlled by central banks. Policies like quantitative easing (injecting money into the economy) can cause the currency to depreciate.

###Financial News

Banks and investors seek to invest in promising economies. Positive news from a region encourages investment and increases demand for its currency. If there is no simultaneous increase in money supply, supply and demand imbalance will push the currency higher.

###Market Sentiment

Trader confidence in the currency’s direction has a significant impact. If traders believe a currency will move in a certain direction, they will trade accordingly, persuading others to follow, influencing demand.

📋Regulations and Market Oversight

Despite its enormous scale, forex has few regulations because there is no single authority overseeing 24/7. Instead, national trading organizations supervise domestic forex trading to ensure providers comply with standards.

In the US: The main agencies are CFTC (Commodity Futures Trading Commission) and NFA (National Futures Association).

💡Market Size and Participants

###Daily Trading Volume

Every day, approximately 5 trillion USD worth of forex is traded worldwide, averaging 220 billion USD per hour.

The market mainly includes institutions, corporations, governments, and currency speculators. Speculators account for about 90% of trading volume, primarily focusing on USD, Euro, and Yen.

###Market Participants

1. Governments and central banks: Stabilize the economy
2. Large banks: Main trading entities
3. Forex brokers: Provide trading services
4. Retail investors: Nearly ⅓ of daily trading volume

With a total of 5 trillion USD traded daily, retail investors conduct about 1.7 trillion USD through brokers.

✅Conclusion

Learning about forex is not difficult. With basic knowledge of forex, understanding how the market operates, key concepts, and 9 practical steps, anyone can start their trading journey.

The forex market is the largest financial investment market globally. With transparency, low entry costs, and high flexibility, forex is one of the most effective investment channels for investors worldwide, from beginners to professionals.

Your forex trading journey will be shaped by knowledge, discipline, and risk management skills. Start with the basics, practice on demo accounts, and gradually develop your skills.

🤔Frequently Asked Questions About Forex Investment

1. How much money is traded on Forex daily?

Every day, around 5 trillion USD worth of transactions occur worldwide, which is about 220 billion USD per hour. Speculators make up about 90% of this volume, mainly focusing on USD, Euro, and Yen.

2. Who is allowed to participate in forex trading?

The forex market is open to many participants: governments, central banks, large banks, brokers, and retail investors. Anyone qualified and with capital can participate.

3. How to learn about forex effectively?

Study basic concepts, understand different market types, choose reputable platforms, and practice on demo accounts before trading live.

4. What are the main risks in forex trading?

The biggest risk is using excessively high leverage. Leverage can amplify profits but also losses. Risk management with Stop Loss is essential.