Global Foreign Exchange Market: Nature, Opportunities, and Considerations for Vietnamese Investors

What Is Forex Trading? Understanding the Nature of the Foreign Exchange Market

The foreign exchange market (Forex) is not a new concept, but for Vietnamese investors, it still holds many mysteries. Unlike stock markets with centralized exchanges, the forex market operates on a decentralized OTC (Over-The-Counter) model worldwide.

This market operates continuously 24/5, connecting participants from all over the world. There is no specific trading location; instead, forex transactions are conducted through a network of international brokerage firms.

Scale and Liquidity of the Market

With an average daily trading volume of 6.6 trillion USD (according to 2020 statistics), the foreign exchange market is the most liquid market globally. This enormous scale is the reason why the forex market cannot be manipulated, ensuring transparency for traders.

Main Participants in the Forex Market

Initially, the forex market was a playground for large financial institutions, central banks, and import-export companies. They use forex tools to:

• Hedge against exchange rate fluctuations in international contracts
• Protect asset values during economic instability
• Profit from exchange rate differentials

In recent years, individual investors have increasingly viewed Forex as a diversification tool for their investment portfolios. Although their trading volume is smaller than that of institutions, the high liquidity and strong price volatility are attracting more individuals to participate.

Most Traded Currency Pairs

According to the Bank for International Settlements (BIS) report in April 2019, some prominent currency pairs include:

EUR/USD leads with 24% of daily trading volume. This currency pair is mainly influenced by interest rate decisions from the ECB and FED.

USD/JPY accounts for 13.2% of volume, reflecting interest rate decisions by the Bank of Japan (BoJ) and FED.

GBP/USD with 9.6% volume, is affected by economic growth in the UK and US as well as interest rate decisions.

Additionally, other widely traded currency pairs include AUD/USD (5.4%), USD/CAD (4.4%), USD/CNY (4.1%), USD/CHF (3.5%), USD/HKD (3.3%), EUR/GBP (2.0%), and USD/KRW (1.9%).

Legal Status of Forex Trading in Vietnam

A key question many Vietnamese investors ask: Is it illegal to trade forex?

Current Regulations

In Vietnam, the government maintains strict control over foreign exchange reserves. Only licensed banks are authorized to conduct forex transactions, while online trading through unlicensed platforms is not legally recognized.

Important note: Engaging in forex trading for investment purposes through legally licensed international brokerage firms is not illegal in Vietnam. However, if you trade through a broker claiming to be “licensed by Vietnam,” that is definitely illegal.

Safe Advice for Investors

To participate in the forex market safely, look for reputable international brokers licensed by specialized agencies abroad (such as securities commissions, financial organizations).

Economic Factors Influencing Forex Volatility

Traders need to monitor five key economic factors affecting the forex market:

1. Central Bank Interest Rate Decisions

Interest rates are considered the “price of money.” When rates rise, the currency’s value tends to increase, and vice versa. This economic information has the strongest impact on currency pair fluctuations.

2. Gross Domestic Product (GDP)

GDP is an indicator of a country’s economic health. When GDP exceeds expectations, the currency tends to appreciate. Conversely, lower-than-expected GDP often leads to currency weakening.

3. Consumer Price Index (CPI) and Inflation

CPI measures the purchasing power of money. High inflation usually prompts central banks to raise interest rates, which in turn affects forex prices.

4. Unemployment Rate

A low unemployment rate indicates a strong economy, potentially leading to higher interest rates. In the US, the monthly release of ADP and NFP figures is closely watched by traders.

5. FOMC Meeting (U.S. Federal Open Market Committee)

FOMC decides interest rates and releases economic assessments. These meetings often cause significant market volatility. For example, on March 18, 2015, the EUR/USD pair surged 400 pips within minutes after the meeting.

Trading Hours and Market Continuity

The forex market operates continuously from Monday to Friday. Major trading sessions include:

• Sydney: 4:00 - 13:00 (winter), 5:00 - 14:00 (summer)
• Tokyo: 6:00 - 15:00 (year-round)
• London: 15:00 - 0:00 (winter), 14:00 - 23:00 (summer)
• New York: 20:00 - 5:00+1 (winter), 19:00 - 4:00+1 (summer)

Each market opening causes strong movements in related currency pairs. For example, when the London session opens, European currency pairs like EUR/USD, GBP/USD tend to be more volatile.

Is Trading Forex Worth It? Practical Considerations

Advantages of the Forex Market

Forex is the largest financial market in the world with extremely high liquidity. Every economic data release creates trading opportunities, with strong price movements offering profit potential.

Investors can trade 24/5, without the restrictions of stock market hours. With modern technical analysis tools, traders can make decisions based on specific data.

Risks to Be Aware Of

Before participating, investors must understand that forex is a high-risk market. Rapid price fluctuations can lead to significant losses if risk management is not properly implemented.

Choosing a reputable broker is crucial. Check:

• Platform credibility and security
• Trading costs (spread, commission)
• Order execution speed
• Customer service quality
• Trading support tools

Conclusion

Forex offers diverse investment opportunities for Vietnamese investors, but selecting the right partner and trading platform is extremely important. Carefully research the market, manage risks conservatively, and always use legally licensed international brokers to protect your interests.