FOREIGN EXCHANGE MARKET

By AKHILESH GANTI 
Reviewed by 
GORDON SCOTT 
Updated Nov 8, 2020

https://www.investopedia.com/ask/answers/how-forex-market-trade-24-hours-day/
for listening
https://www.youtube.com/watch?v=RqwTcg0EuJU – easy listening with subtitles

Vocabulary:
- Currency (n) đồng tiền – national currencies: đồng tiền của các nước
- Money (n) tiền tệ
- Strong currencies > < weak currencies

https://www.xe.com/symbols.php

https://blog.revolut.com/a/currency-symbols-of-the-world/

Exchange (n) the process of changing one currency for another:

- We offer commission-free exchange at our UK ports.
exchange of sth
- Deregulation prevented any barrier to the free exchange of currencies.

Exchange (v) to change one currency into another:

exchange sth for sth
- In this way we will save on the costs of exchanging euro for sterling and vice
versa.
exchange sth into sth
- Larger hotels will exchange dollars into local currency.

exchange rate (n)

+ buying rates (for cash / for transfer) = bid rates – tỷ giá mua vào (ngân hàng)
+ selling rates = offer rates

Thông thường tỷ giá bán ra cao hơn một chút so với tỷ giá mua vào, do đó ngân hàng có
thể kiếm lời.

Normally selling rates are slightly higher than buying rates, thus banks can make profits.

Volatility (n) the quality or state of being likely to change suddenly, especially by
becoming worse:
- the volatility of the political situation
- worries about volatility in the economy
- market/price/currency volatility
Participate (v) to take part in an event or activity:
participate in sth
- All staff are encouraged to participate in the project.
- Several hotels are participating in the program.

Participant (n) – người tham gia

Account – accountant (n) – nhân viên kế toán
Serve – servant (n) – người phục vụ
Consult – consultant – nhân viên tư vấn

Pollute (v) – pollutant (n) chất gây ô nhiễm

COMPREHENSION QUESTIONS
1. What is the Forex?
Definition of Forex:
- The foreign exchange market is a global marketplace that determines the
exchange rate for currencies around the world.
- The foreign exchange market is the marketplace in which currencies are
exchanged for each other.
(The foreign exchange market is an OTC market.)

2. What is an OTC market?

An OTC market is the market in which transactions are made directly between 2
participants and without a central exchange or broker.

Over-the-counter markets do not have physical locations; instead, trading is

conducted electronically and throughout the day (24 hours a day)

(Phân biệt giữa OTC markets – thị trường phi tập trung và Exchanges – thị trường tập
trung)

3. Who are different participants in the Forex? What are their roles in the market or
the purposes of their participation in the market?
- Interbank markets
- Multinational corporations and importing-exporting companies
- National Central banks
- Hedge funds and some other funds.
- Retail traders

4. What are different types of transactions in the Forex?

(How does the Forex work? – the operation of the Forex)
- Spot market – thị trường giao ngay
- Forward market – thị trường (hợp đồng) kỳ hạn
- Futures market - thị trường (hợp đồng) tương lai/ giao chậm

5. What is an exchange rate?

https://courses.lumenlearning.com/boundless-economics/chapter/exchange-rates/
Definition 1: An exchange rate between two currencies is the rate at which one currency
will be exchanged for another.
Definition 2: An exchange rate is the value of one nation's currency versus the currency
of another nation or economic zone.

(For example, how many U.S. dollars does it take to buy one euro? As of July 31, 2020,
the exchange rate is 1.18, meaning it takes $1.18 to buy €1)

Definition 3: Exchange rate is the price of one currency in terms of another currency.

Exchange rates can be either fixed or floating. Fixed exchange rates are decided by
central banks of a country whereas floating exchange rates are decided by the
mechanism of market demand and supply.

5.1 What is the buying rate?

The buying rate is the rate at which money dealers (banks) will buy foreign currency.

5.2 What is the selling rate?

The selling rate is the rate at which money dealer (banks) will sell foreign currency.

What Is the Foreign Exchange Market? – thị trường ngoại hối

The foreign exchange market (also known as forex, FX, or the currencies market) is
an over-the-counter (OTC) global marketplace that determines the exchange rate for
currencies around the world. Participants in these markets can buy, sell, exchange, and
speculate – đầu cơ - on the relative exchange rates of various currency pairs.

What Is an Over-the-Counter Market?

An over-the-counter (OTC) market is a decentralized market in which market

participants trade stocks, commodities, currencies, or other instruments directly between
two parties and without a central exchange or broker. Over-the-counter markets do not
have physical locations; instead, trading is conducted electronically (= via electronic
means of communication such as computer link or telephone.)

Central (adj) – centralized > < decentralized

Participate (v)

In an OTC market, dealers act as market-makers by quoting prices at which they will
buy and sell a security, currency, or other financial products. A trade can be executed
between two participants in an OTC market without others being aware of the price at
which the transaction was completed.1 In general, OTC markets are typically less
transparent than exchanges and are also subject to fewer regulations. Because of this,
liquidity in the OTC market may come at a premium.
A currency pair is the quotation of two different currencies, with the value of one
currency being quoted against the other. The first listed currency of a currency pair is
called the base currency, and the second currency is called the quote currency.

Foreign exchange markets are made up of banks, forex dealers, commercial

companies, central banks, investment management firms, hedge funds, retail forex
dealers, and investors.

Hedge fund là gì?

Quỹ phòng ngừa rủi ro hay quỹ phòng hộ (tiếng Anh: Hedge fund) là một khoản đầu tư
thay thế được thiết kế để bảo vệ danh mục đầu tư khỏi sự không chắc chắn của thị
trường, đồng thời tạo ra lợi nhuận tích cực ở cả khi thị trường lên và xuống.

KEY TAKEAWAYS

 The foreign exchange market is an over-the-counter (OTC) marketplace that

determines the exchange rate for global currencies.
 It is, by far, the largest financial market in the world and is comprised of a global
network of financial centers that transact 24 hours a day, closing only on the
weekends.
 Currencies are always traded in pairs, so the "value" of one of the currencies in
that pair is relative to the value of the other.

Understanding the Foreign Exchange Market

The foreign exchange market—also called forex, FX, or currency market—was one of
the original financial markets formed to bring structure to the burgeoning global
economy. In terms of trading volume, it is, by far, the largest financial market in the
world. Aside from providing a venue for the buying, selling, exchanging,
and speculation of currencies, the forex market also enables currency conversion for
international trade settlements and investments.

International trade = foreign trade = importing and exporting

international trade settlements = payments for imports/ from exports

international investments – đầu tư quốc tế (multinational corporations)

Burgeoning (adj) developing quickly:

- The company hoped to profit from the burgeoning communications industry.
Venue (n) the place where a large or important event happens:

- The group has booked the popular 1000-seat venue for its annual sales
conference.
According to the Bank for International Settlements (BIS), which is owned by central
banks, trading in foreign exchange markets averaged $6.6 trillion per day in April 2019.1

Currencies are always traded in pairs, so the "value" of one of the currencies in that pair
is relative to the value of the other. This determines how much of country A's currency
country B can buy, and vice versa. Establishing this relationship (price) for the global
markets is the main function of the foreign exchange market. This also greatly enhances
liquidity in all other financial markets, which is key to overall stability.

The value of a country's currency depends on whether it is a "free float" or "fixed float."
Free-floating currencies are those whose relative value is determined by free-market
forces such as supply-demand relationships. A fixed float is where a country's governing
body sets its currency's relative value to other currencies, often by pegging it to some
standard. Free-floating currencies include the U.S. dollar, Japanese yen, and British
pound, while examples of fixed floating currencies include the Chinese Yuan and the
Indian Rupee.

Is Vietnamese dong (VND) a “free float” or "fixed float currency?

Peg (v) to fix the amount or value of something in relation to something else:

- There’s talk of trying to peg the value of the peso to the dollar.

Peg (n) an official arrangement for a price, currency, etc. to stay at a particular level or
within a particular range:

peg against sth The government removed the currency from its peg against the dollar.

One of the most unique features of the forex market is that it is comprised of a global
network of financial centers that transact 24 hours a day, closing only on the weekends.
As one major forex hub closes, another hub in a different part of the world remains open
for business. This increases the liquidity available in currency markets, which adds to its
appeal as the largest asset class available to investors.

Hub (n) the central or main part of something where there is most activity:

- The City of London is the hub of the UK's financial world.

- The computer department is at the hub of the company's operations.

AN OVERVIEW OF FOREX MARKETS

https://traderviet.com/t/3-loai-thi-truong-forex-chu-yeu.8977/

(Bài trên đường link này có phân biệt các loại giao dịch trên thị trường ngoại hối rất thú
vị - các em nên đọc nhé)
https://traderviet.com/t/3-loai-thi-truong-forex-chu-yeu.8977/

phân biệt giữa forward markets and future markets

The FX market is where currencies are traded. It is the only truly continuous and nonstop
trading market in the world. In the past, the forex market was dominated by institutional
firms and large banks, which acted on behalf of clients. But it has become more retail-
oriented in recent years, and traders and investors of many holding sizes have begun
participating in it.

Retail investors – các nhà đầu tư nhỏ lẻ

Orient (v)

Trước đây, các công ty đầu tư lớn và các ngân hàng lớn chiếm lĩnh thị trường và họ
thực hiện giao dịch thay cho khách hàng. Trong những năm gần đây, thị trường trao đổi
ngoại hối mở rộng cho các nhà đầu tư nhỏ lẻ, và người kinh doanh hay nhà đầu tư với
mọi quy mô kinh doanh lớn nhỏ đều có thể tham gia vào thị trường

Dominate (v) to be more important, powerful, or successful than other people,

companies, etc.: chiếm lĩnh, chi phối, có vai trò lớn/ chính đối với cái gì

- This is an industry where a few global manufacturers and their brands dominate.
- They dominate the market for high-speed internet routers.- chiếm lĩnh thị trường
(chiếm phần lớn thị phần)

Spot market

Forex trading in the spot market has always been the largest because it trades in the
biggest “underlying” real asset for the forwards and futures markets. Previously,
volumes in the forwards and futures markets surpassed those of the spot markets.
However, the trading volumes for forex spot markets received a boost with the advent of
electronic trading and the proliferation of forex brokers.

trading volumes – lượng/ giá trị giao dịch

When people refer to the forex market, they usually are referring to the spot market. The
forwards and futures markets tend to be more popular with companies that need to hedge
their foreign exchange risks out to a specific date in the future.

How the spot market works

The spot market is where currencies are bought and sold based on their trading price.
That price (exchange rate) is determined – chi phổi - by supply and demand and is
calculated (được tính/ được xác điịnh) based on several factors, including current interest
rates, economic performance, sentiment (nhạy cảm) toward ongoing political situations
(both locally and internationally), and the perception (nhận biết) of the future
performance of one currency against another.
A finalized deal is known as a “spot deal.” It is a bilateral transaction (giao dịch song
phương) in which one party delivers an agreed-upon (theo thỏa thuận) currency amount
to the counterparty (đối tác) and receives a specified amount of another currency at the
agreed-upon exchange rate value. After a position is closed, the settlement is in cash.
Although the spot market is commonly known as one that deals with transactions in the
present (rather than in the future), these trades actually take two days for settlement.

Bilateral (adj) involving or affecting two different organizations, countries, etc.: song
phương

- Futures contracts are bilateral agreements, with both the purchaser and the
seller equally obligated to complete the transaction.
(Hộp đồng tương lai là hộp động song phương, với bên mua và bên bán có trách
nhiệm như nhau về thực hiện giao dịch)

- Mexico already has bilateral trade agreements with Colombia, Venezuela, and
Costa Rica.
(Mexico đã ký hiệp định thương mại song phương với ….. )

an agreed-upon currency amount – lượng ngoại tệ theo thỏa thuận

deliver (v) ~ a currency amount – bán 1 lượng ngoại tệ

Spot markets deal with transactions in the present (rather than in the future) which
actually take two days for settlement.

Thị trường giao ngay thực hiện giao dịch ở hiện tại (mà không phải trong tương lai) và
cần 2 ngày để thực hiện giao dịch.

Forwards and futures markets

A forward contract is a private agreement between two parties to buy a currency at a

future date and at a predetermined price in the OTC markets.

(hợp đồng kỳ hạn là hợp đồng thỏa thuận giữa hai bên với nhau để mua loại tiền nào đó
vào thời gian trong tương lai với giá xác định trước trên thị trường phi tập trung.)

A futures contract is a standardized agreement between two parties to take delivery of a

currency at a future date and at a predetermined price.

Hợp đồng tương lai là hợp đồng chuẩn hóa giữa hai bên để mua một loại tiền nào đó
vào thời gian trong tương lai với giá xác định trước

Unlike the spot market, the forwards and futures markets do not trade actual currencies.
Instead, they deal in contracts that represent claims to a certain currency type, a specific
price per unit, and a future date for settlement.

In the forwards market, contracts are bought and sold OTC between two parties, who
determine the terms of the agreement between themselves. In the futures market, futures
contracts are bought and sold based upon a standard size and settlement date on public
commodities markets, such as the Chicago Mercantile Exchange.

In the U.S., the National Futures Association regulates the futures market. Futures
contracts have specific details, including the number of units being traded, delivery and
settlement dates, and minimum price increments that cannot be customized. The
exchange acts as a counterparty to the trader, providing clearance and settlement
services.

Both types of contracts are binding and are typically settled for cash at the exchange in
question upon expiry, although contracts can also be bought and sold before they expire.
The currency forwards and futures markets can offer protection against risk when trading
currencies. Usually, big international corporations use these markets to hedge against
future exchange rate fluctuations, but speculators take part in these markets as well.

CURRENCY EXCHANGE MARKET PARTICIPANTS

The forex market is the most massive market by cash volume worldwide, with
about $4 trillion traded daily.

Foreign currency exchange trading is a fast growing business industry worldwide. The
currency exchange takes place on a very large scale and this market has a global
presence as currency exchange market participants are from all around the globe. There
are various participating entities taking part in forex trading. The main players or the
main market participants in currency exchange are Central Banks, largest investment
firms, multinational commercial companies, hedge funds, mutual funds, insurance
companies and retail forex brokers etc. The different forex market participants have
different levels of access in currency trading market. At the top, there is interbank
market which consists of largest investment banking firms. Within this inter-bank
market, the spreads are razor sharp and these spreads are not known to other forex
market participants who are not a part of this inner circle.

The access levels which various currency exchange market participants enjoy are
determined on the basis of amount of money being traded by different forex market
participants. The top level inter-bank market accounts for 53% of all transactions. At the
next level there are smaller investment banks, followed by large multi-national
corporations, large hedge funds, and some of the retail forex brokers. Read on to know
more in details about different market participants in currency exchange and their
influence on forex market.

Banks

The inter-bank market is the major currency exchange market participants playing an
important role in currency trading market. This large market trades billions of dollars
every single day and they have a great impact on inflation rates and the interest rates.
The inter-bank market is basically a controller in terms of the money supplied, inflation
rates and the interest rates.
Most of the time, people trade market volume in the interbank market – between banks.
Banks trade for themselves and their clients. Then, the ‘big four’ (Citibank at 12%, JP
Morgan and HSBC at 8.8%, and Deutsche Bank at 7.9%) dominates the interbank
market.

As dealers, banks profit from the bid or ask spreads they implement on exchange rates
quoted to their clients.

Thị trường liên ngân hàng là đối tượng tham gia lớn nhất trên thị trường Forex, họ thực
hiện giao dịch hàng tỷ đô mỗi ngày và có tác động lớn đối với tỷ lệ lạm phát và lãi xuất.

Họ thực hiện giao dịch cho chính họ hay cho khách hàng, họ hưởng lợi nhuận dựa trên
chệch lệch giữa tỷ giá bán ra và tỷ giá mua vào.

Multi-National Commercial Companies (tập đoàn đa quốc gia + công ty xuất nhập khẩu)

Multinational commercial companies are also one of the important market participants in
foreign exchange trading. The role of multinational companies in forex trading involves
carrying out the financial activities seeking currency exchange to pay for goods and
services. These participating companies have a little influence on the currency rates
however they can contribute fairly well in the forex market with unpredictable outcomes.
The small amount traded by these commercial companies as compared to other forex
market participants in forex trading like banks or speculators and their trades often have
little short term impact on market rates. Nevertheless, trade flows undertaken by these
companies are an important factor in the long-term direction of a currency's exchange
rate.

- Tập đoàn đa quốc gia mua ngoại tệ để thanh toán cho hàng hóa hay dịch vụ.
(hàng hóa và dịch vụ gì – phân tích kỹ hơn cho ý này)

Central banks

National central banks, other important market participants in forex trading play a
significant role in forex trading market. Their role includes trying and controlling the
currency supply, interest rates and inflation rates. Banks are the currency exchange
market participants which usually have official or unofficial target rates for their
currencies. They can use their often substantial foreign exchange reserves to stabilize the
market. The National Central Banks make use of their foreign exchange reserves to
stabilize the forex market. The stabilization strategy of most of these central banks is
focused towards the goal of buying when the currency exchange rate is low and to sell
the currency when the rate goes high. Central Banks does not suffer from bankruptcy
compared to other currency exchange market participants because of their stocked
foreign exchange reserves.

- Ngân hàng trương ương của các nước tham gia vào thị trường với vai trò bình ổn
tỷ giá và thực hiện các mục tiêu bình ổn lãi xuất và kiểm soát lạm phát.
- Họ sử dụng lượng dự trữ ngoại tệ tương đối lớn của họ để thực hiện những mục
tiêu bình ổn trên
Retail Traders

Unfortunately, this is the very bottom of the cake – trading on worse terms compared to
any other listed above. Also, they need retail forex brokerages to trade. And these
brokers might not be hedging their risk on their trades.

If they are, they will often use a bank for their forex dealing. In turn, it will use another
bank, which might finally have behind it one of the ‘big four’ or tier 1 banks.

For each level, the prices, spreads, and others will gradually worsen.