“Forex trading” is a phrase no longer unfamiliar to the trading community in Vietnam. However, despite its popularity, the foreign exchange market still contains many misunderstandings, false expectations, and potential risks. In this article, we will analyze in a logical and objective way the most fundamental things that traders need to understand before deciding to approach the forex market.
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What is forex trading?
Forex (short for Foreign Exchange) is the largest currency exchange market in the world. When participating in forex trading, a trader is conducting a transaction with a currency pair, for example USD/EUR. Each buy or sell order reflects their expectation of the rise or fall of one currency compared to the other.
In contrast to the stock market – where traders can only profit when prices rise – the forex market allows traders to earn profits in both upward and downward directions, as long as they accurately analyze the trend.
Advantages of participating in forex trading
Below are the top 3 reasons why this form of investment attracts a large number of traders:
Extremely high liquidity
The forex market has a trading volume of up to more than 6 trillion USD per day, making it the most liquid financial market in the world. This helps orders open and close quickly, with minimal slippage – a factor that every trader values highly.
Flexible 24/5 trading
Traders can trade forex at any time of the day, from Monday to Friday, as the market operates continuously across major sessions such as Sydney, Tokyo, London, and New York. This flexibility allows you to trade outside office hours or during time frames that suit your personal schedule.
Leverage and low transaction costs
Using leverage in forex helps control a trading volume larger than the invested capital. In addition, many trading platforms today offer low costs – especially attractive spreads (the difference between buy/sell prices), helping optimize investors’ strategies.
Potential risks in forex trading
Although attractive in many aspects, forex trading also comes with considerable risks, especially for newcomers to the market who are not well-prepared.
Strong and unpredictable price fluctuations
Currency exchange rates often fluctuate due to many factors such as interest rate policies, economic data, political instability, or even rumors. Without good risk management, just one unexpected piece of news can make a trader’s account “evaporate” within minutes.
Unrealistic expectations
Many people believe that simply pressing the Buy or Sell button can generate quick profits. But in reality, more than 90% of individual traders lose money in their first year of forex trading due to lack of knowledge, lack of discipline, and no clear trading strategy.
Risks from unreliable brokers
Not every forex broker is trustworthy. Some platforms may manipulate orders, widen spreads, or even scam traders out of their money. Therefore, choosing a reputable broker is an essential step to ensure safety in forex trading.
Basic rules when participating in forex trading
To trade effectively, every trader needs to master the following rules:
Understand the structure of a currency pair
In trading, each pair has a first currency called the “base currency” and a second currency called the “quote currency.” For example, in the EUR/USD pair, EUR is the base currency. When you buy this pair, it means you expect EUR to strengthen against USD.
Technical analysis and fundamental analysis
Technical analysis helps you read charts, identify trends, and determine entry points. Meanwhile, fundamental analysis provides insights into economic and political conditions, thereby predicting the long-term movements of the market. Combining the two methods will help improve efficiency in forex trading.
Risk management is the top priority
You should never trade without setting a stop loss. Clearly define the level of risk you can accept for each trade (usually 1–2% of total capital) and adhere to this principle with discipline.
Forex trading and misconceptions to avoid
Forex is not a get-rich-quick scheme
Although it has great profit potential, forex trading is not a fast track to wealth. It is a field that requires time to learn, practice, and build strong psychological control like any other professional career.
Demo trading is not the same as live trading
Many people assume that if they make profits on a demo account, they will also win on a live account. However, the psychological factor in a real trading environment (with real money) is completely different and can strongly influence a trader’s decisions.
Do not rely too much on promised profits
Some organizations or individual brokers may paint visions of “high passive income,” “guaranteed daily profits” to lure newcomers. Traders need to remain clear-headed and evaluate carefully before participating in any forex trading program that shows signs of lacking transparency.
Factors to consider when choosing a forex broker
To ensure safety and efficiency in forex trading, below are the criteria traders should carefully consider when choosing a broker:
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Operating license from reputable financial authorities such as FCA (UK), ASIC (Australia), CySEC (Cyprus)
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Low transaction costs: spreads, reasonable commissions
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Fast order execution speed and not too much slippage
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Vietnamese language support or a professional support team
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User-friendly and easy-to-use platform interface
Conclusion
In short, forex trading is an attractive currency trading activity, offering great profit opportunities but also accompanied by many challenges and risks. Equipping yourself with sufficient knowledge, training your mindset, and choosing the right broker are the key factors that help traders survive and grow sustainably in this market.
