Comprehensive Guide to Forex Trading - Everything Beginners Need to Know

🎯 Why is Forex trading attractive to investors?

The foreign exchange market has become one of the most popular investment choices in Vietnam in recent years. This is no coincidence - Forex offers advantages that traditional investment tools like stocks or real estate do not.

Extremely low transaction fees: Unlike other investment channels, forex trading minimizes intermediary costs. The trading platform only earns profit from the spread (the buy-sell difference) - a very small amount.

Continuous operation: The Forex market is open 24/7 worldwide. You can trade at any time - morning, afternoon, evening, or night - depending on your schedule.

No one can control it: With a trading volume of over 5 trillion USD daily, the forex market is too large for any organization (including central banks) to manipulate.

Leverage power: You only need to deposit a small margin but can trade much larger amounts. For example, with 200:1 leverage, about 60 USD can control a 12,000 USD trade. However, this is a double-edged sword - it can both multiply profits and amplify losses.

Low entry barriers: You only need a few hundred thousand VND as margin to start, something that stock or real estate markets cannot offer.

📚 What is Forex? How does the forex market operate?

Besides forex (Forex or FX), there are many definitions depending on the context:

• Foreign currency: USD, EUR, JPY…
• Payment tools: international bank cards, bills of exchange…
• International certificates: government bonds, stocks…
• Cryptocurrencies: Bitcoin, Ethereum…
• Precious metals: gold…

But when talking about forex trading, we refer to a decentralized market where people trade, buy, sell, and exchange different currencies for various purposes - from import-export to speculation for profit.

What is the forex market? A global trading space with an average daily volume reaching up to 5.3 trillion USD. It is the largest financial market in the world, far surpassing stock, commodity, or bond markets in scale.

What is forex trading? Simply, it is the activity of buying and selling currency pairs to exploit exchange rate fluctuations for profit. Unlike central banks that participate to adjust the economy, individual investors participate with a single goal: profit from price differences.

💱 What do you trade in the forex market?

The main commodity in the Forex market is currency, traded in pairs. For example: EUR/USD.

In the example:

• EUR = Euro (EU bloc)
• USD = US dollar

Since the exchange rate between these two currencies constantly changes due to economic, political factors… there are countless trading opportunities.

Two basic concepts about exchange rates:

Base Currency (Price quote currency): The currency on the left of the currency pair, representing its value relative to the other currency. If EUR/USD = 1.1500, it means 1 EUR = 1.1500 USD.

Quote Currency (Pricing currency): The currency on the right, used to “measure” the value of the base currency.

Major currency pairs in forex trading:

Although more than 30 currencies are traded, 7 major pairs account for 85% of the market value:

Other assets also traded: Besides Forex, reputable trading platforms also offer stock indices, commodities, gold, cryptocurrencies…

🔄 How does forex trading work? Real-life example

You predict that the EUR/USD pair will increase in value. You:

1. Buy 10,000 EUR at the rate 1.1500 with 11,500 USD
2. Two weeks later, the rate rises to 1.2500
3. Sell 10,000 EUR, receiving 12,500 USD
4. Profit: 12,500 - 11,500 = 1,000 USD

But this is where leverage comes into play. Instead of spending 11,500 USD, with 200:1 leverage, you only need to deposit about 60 USD to open this trade!

Two trading directions:

LONG (Buy): You believe the quote will strengthen. Profits increase as the rate rises, losses occur if it falls.

SHORT (Sell): You believe the quote will weaken. Profits increase as the rate falls, losses if it rises.

📖 8 Basic concepts you must master

Long: Buying a currency pair with the expectation of selling at a higher price. You profit from price appreciation.

Short: Selling a currency with the prediction it will decrease in value. You profit from price depreciation.

Leverage (Leverage): Trading with more money than you have. Expressed as ratios like 50:1, 100:1, 500:1…

Margin (Margin): The amount you need to deposit with the platform to open and maintain a trade.

Pip: The smallest price movement in the exchange rate, usually to the thousandth. For example, EUR/USD changes from 1.2000 → 1.2005 = 5 pips.

Spread (Spread): The difference between the bid price (bid) and ask price (ask), measured in pips. This is the profit for the broker.

Lot (Lot): The trading unit. You can trade Nano (100 units), Micro (1,000), Mini (10,000), or Standard (100,000).

Stop Loss & Take Profit: Automatic orders to close trades when losses or profits reach preset levels.

🎓 Types of forex trading markets

Spot Forex Market: Immediate trading, settlement within 2 business days. Banned in Vietnam.

Forex CFD: Contract for difference allowing speculation without owning the underlying asset. Accounts for 99% of Vietnam’s trading platforms. Not banned but choose platforms licensed by ASIC, FCA, CySEC.

Currency Futures: Futures contracts with fixed prices, settled on a future date.

Currency Options: Predicting price increase/decrease relative to a fixed level. Correct predictions earn profit, wrong ones lose money.

Currency ETFs: Exchange-traded funds tracking exchange rates.

🚀 9-step guide to start forex trading

Step 1: Learn basic concepts

Understand terms like Long, Short, Pip, Spread, Margin, Leverage as the foundation for successful trading. Not mastering these can lead to losses.

Step 2: Explore different markets

Spot Forex (banned in Vietnam), CFD (popular), Futures, Options, ETFs. Each operates differently.

Step 3: Choose a reputable forex broker

Main criteria: license from international authorities (ASIC, FCA, CySEC), low fees, reasonable commissions, user-friendly interface, good customer support.

Step 4: Open an account

Prepare: ID card (front and back), email, phone number, bank account.

Step 5: Select currency pairs to trade

Analysis:

• Economic situation: Stronger economy means currency will appreciate
• Trade advantage: Countries exporting high-demand goods will have stronger currency
• Political situation: Elections, monetary policies affect prices

Step 6: Determine margin amount

Safety rule: invest only 2% of total cash in one currency pair. If trading 100,000 USD with 1% margin, deposit 1,000 USD.

Step 7: Decide to buy or sell

BUY (Long) when you believe the quote will strengthen. Profits increase with upward movements, losses with downward.

SELL (Short) when you believe the quote will weaken. Profits increase with downward movements, losses with upward.

Step 8: Set Stop Loss and Take Profit orders

Stop Loss: Closes the trade when losses reach a preset level, minimizing damage.

Take Profit: Closes the trade when profits reach the target.

Example: EUR/USD is at 1.11128, you predict it will rise to 1.2000 then fall. Place a limit sell order at 1.2000. When it hits that level, the order executes automatically, bringing profit.

Step 9: Monitor and control emotions

The forex market fluctuates constantly. It’s crucial to follow your strategy, avoid trading based on emotions. Keep learning and improving your analysis skills.