Understanding the Foreign Exchange Market: From A to Z for Vietnamese Investors

Besides familiar investment forms such as stocks, real estate, and the foreign exchange market (Forex) is increasingly attracting the attention of Vietnamese investors. However, the question “what is playing forex” remains a valid concern for many beginners. This article will help you understand deeply the nature, potential, and legal issues related to participating in this market.

What Is the Foreign Exchange Market? Basic Information You Need to Know

What exactly is playing forex? Forex is the global currency trading market, where investors can buy and sell foreign currencies aiming to profit from exchange rate fluctuations. It is not a centralized exchange like the stock market, but a decentralized market called OTC (Over-The-Counter), connecting participants through a worldwide network.

Market Size and Liquidity

The foreign exchange market has the highest liquidity in the world. According to 2020 statistics, the average daily trading volume reached 6.6 trillion USD. Thanks to this enormous scale, the Forex market cannot be manipulated by one or a few individuals, providing investors with a transparent and fair trading environment.

Who Are the Participants in the Forex Market?

Initially, the foreign exchange market was a playground for financial institutions, central banks, and large import-export companies. They use Forex to hedge against exchange rate risks, protect against inflation, and store value during political instability.

However, as the demand for diversification from individual investors increased, the Forex market gradually became a widely concerned tool. Although the trading volume of individual investors remains small compared to large organizations, the high liquidity and profit opportunities from price fluctuations are attracting more and more participants.

Legal Issues: Is Playing Forex Legal in Vietnam?

This is an important question that any Vietnamese investor wanting to participate in Forex needs to clarify.

Current Legal Status

In Vietnam, the government maintains strict control over foreign exchange reserves, so only licensed banks are authorized to conduct official foreign exchange transactions. Forex trading through international platforms has not yet been legalized by Vietnamese law, and no Forex trading platform is permitted to operate within Vietnam.

However, this does not mean that Forex trading is illegal. Individual investors are fully entitled to conduct foreign exchange transactions for investment purposes. As long as you trade through internationally licensed brokers in countries that permit Forex, you will not violate Vietnamese law.

Important Warning

If you trade Forex through a broker claiming to be “licensed by Vietnam,” it is definitely a scam, because Vietnam does not issue such licenses. Always choose reputable international brokers licensed by authorities in countries like Australia, the UK, the European Union, etc.

Most Traded Currency Pairs in the World

Not all currency pairs have the same trading volume. According to the Bank for International Settlements (BIS) survey in April 2019, here are the top 10 most popular currency pairs:

These currency pairs are traded heavily due to high liquidity, large volumes, and many economic news impacts.

Which Economic News Affect the Forex Market?

To succeed in Forex trading, you need to understand which factors influence currency price fluctuations. There are 5 main economic indicators that impact nearly all currency pairs:

1. Central Bank Interest Rate Decisions

Interest rates are considered the “price” of a currency. When rates rise, the currency becomes more attractive (because it offers higher returns), so its value increases. Conversely, lowering interest rates causes the currency to weaken. This is the most immediate and powerful influencing factor.

2. Gross Domestic Product (GDP)

GDP reflects the economic health of a country. When GDP exceeds expectations, the country’s currency tends to appreciate. Conversely, lower-than-expected GDP weakens the currency.

3. Consumer Price Index (CPI) and Inflation

High CPI indicates high inflation, which weakens the currency’s purchasing power. Central banks often raise interest rates to combat inflation, impacting currency prices.

4. Unemployment Rate

A low unemployment rate indicates a healthy economy, potentially leading to higher interest rates. The most important indicators are the US ADP and NFP (Non-Farm Payroll) reports, released monthly.

5. US Federal Open Market Committee (FOMC) Announcements

The FOMC meets monthly to set the open market interest rate and provide economic outlooks. These announcements can cause significant volatility. For example, on March 18, 2015, the EUR/USD surged 400 pips within minutes after the FOMC statement.

Optimal Trading Hours for Forex Investors

The Forex market operates 24 hours a day, but volatility levels vary. Below are the trading hours of major platforms:

Each trading session creates different volatility. For example, when Sydney opens, AUD moves strongly; when London opens, European pairs (EUR, GBP) become more active. Through multi-asset trading platforms, you can access all four sessions from a single app, enabling almost 24/5 (24 hours a day, 5 days a week) trading.

Steps to Open a Forex Trading Account

If you decide to participate in Forex, opening an account is relatively simple:

Step 1: Create an Account
Choose a reputable broker, fill in personal information, and verify. You can opt for a demo account (without real money) or a real account.

Step 2: Choose the Market
Decide which currency pairs or assets you want to trade (EUR/USD, gold, etc.).

Step 3: Open a Position
Decide to buy (long) or sell (short) depending on your market forecast.

Step 4: Risk Management
Set position size, profit target (take profit), and maximum loss (stop loss).

Step 5: Confirm the Trade
Review details carefully and confirm the order.

Taxes and Other Financial Issues

According to current Vietnamese law, Forex trading is still an unpermitted activity domestically, so there are no specific tax policies for income from this activity. Trading Forex in Vietnam carries high risks due to unclear legal regulations.

Should You Join the Forex Market?

Before deciding, consider these factors:

Advantages:

• Forex is the largest and most liquid financial market globally
• Opportunity to trade 24/5 with strong price movements
• Can start with small capital thanks to leverage
• Offers diversification opportunities

Risks:

• Unclear legal framework in Vietnam causes uncertainty
• High risk of losses, especially when using leverage
• Requires strong trading knowledge and skills
• Many scam brokers exist

Final Advice:
If you choose to participate, select internationally licensed brokers with long-standing reputation. Start with a demo account to learn and practice, then deposit real money. Manage risks well and never trade beyond your capacity.

Forex trading is an opportunity but also a challenge. Educate yourself thoroughly before stepping in.