​

FOREIGN EXCHANGE TRADING IN VIETNAM’S FINANCIAL MARKET

line
08 tháng 12 năm 2025

FOREIGN EXCHANGE TRADING IN VIETNAM’S FINANCIAL MARKET

Bui Minh Tiet

 

1. Introduction

            The foreign-exchange (FX) market is one of the most important components of the global financial system. It is where the buying, selling, exchange, and investment of different currencies occur to serve international trade, investment, tourism, remittances, and also speculation and hedging against exchange-rate risk.

            In Vietnam, foreign-exchange trading plays an essential role in the process of economic integration, especially since the country’s accession to the World Trade Organization (WTO 2007) and participation in multiple free-trade agreements (FTAs, CPTPP, EVFTA, RCEP, etc.). Over the past two decades, FX trading has expanded beyond goods trade to include financial transactions, direct investment (FDI), portfolio investment (FII), and capital-market activities.

2. Theoretical Foreign-Exchange Trading

2.1. Definition

            Foreign-exchange trading refers to the purchase, sale, exchange, or investment in foreign currencies for profit or to hedge exchange-rate risk. Instruments traded include physical currency, book-entry currency, and derivative contracts whose value depends on exchange rates—such as forwards, swaps, and options.

            Broadly, FX trading encompasses:

- Spot transactions: currency exchanges settled within two business days.

- Forward transactions: contracts to buy or sell currency today for settlement at a future date at a pre-agreed rate.

- Swaps: simultaneous purchase and sale of the same currency for different maturities, commonly used for liquidity management.

- Options: contracts granting the right, but not the obligation, to buy or sell currency at a predetermined rate on or before a future date.

2.2. Roles of Foreign-Exchange Trading

  1. Facilitating international trade and investment: enables exporters, importers, and investors to convert currencies and settle international payments.
  2. Managing exchange-rate risk: corporations, banks, and investors use FX instruments to hedge against unfavorable rate movements.
  3. Improving capital allocation efficiency: the FX market channels capital across borders, supporting inflows of FDI and portfolio investment.
  4. Serving monetary-policy operations: the State Bank of Vietnam (SBV) intervenes in the FX market to regulate liquidity, stabilize the exchange rate, and control inflation.
  5. Deepening the financial market: FX trading promotes new financial instruments and increases market sophistication.

2.3. Relationship between Exchange Rate and FX Trading

            The exchange rate is the central variable of FX activities. Its fluctuations affect asset values, liabilities, cash flows, and profitability of internationally engaged firms. FX trading is both a cause and a consequence of exchange-rate movements:

- When investors expect the Vietnamese dong (VND) to depreciate, they tend to buy U.S. dollars (increasing demand for USD and pressure on VND).

-When foreign-currency supply is ample (through FDI, trade surplus, or remittances), the exchange rate stabilizes and FX trading becomes less risky.

3. The Current State of Vietnam’s Foreign-Exchange Market

3.1. Market Structure

Vietnam’s FX market operates on two tiers:

- Interbank market: where commercial banks, the SBV, financial institutions, and large corporations trade directly or via brokers. This segment accounts for the majority of transactions.

- Retail market: includes currency exchanges for individuals and small firms, remittances, tourism, and retail FX services.

Main participants:

  1. State Bank of Vietnam (SBV): regulator and main stabilizing authority; announces the daily central exchange rate and intervenes when necessary.
  2. Commercial banks: act as market makers; conduct spot, forward, and swap transactions; and provide hedging services to clients.

  3. Export–import enterprises: maintain large FX needs for trade settlement.

    4.  

  4. Foreign investors: convert investment capital, profits, and dividends through authorized FX accounts.

3.2. Exchange-Rate Regime and Policy

            Since 2016 Vietnam has adopted a central-rate mechanism, under which the SBV announces a daily reference rate and banks may trade within a ± 5 percent band.


            This regime increases flexibility, allowing market forces to influence rates while maintaining macroeconomic stability.

- 2010 - 2015: Vietnam maintained a quasi-fixed rate with occasional devaluations, leading to foreign-currency shortages during trade-deficit years.

- From 2016 onward: the central-rate system has stabilized the market, supported exports, and expanded foreign-exchange reserves (exceeding USD 100 billion by 2024).

3.3. Market Scale and Turnover

            According to SBV data, interbank FX trading volume reached about USD 2.5 trillion in 2024, a 14 percent increase over 2023. Spot transactions accounted for roughly 70 percent of turnover, swaps 25 percent, and forwards 5 percent. The most traded currencies are USD, EUR, JPY, KRW, CNY, and SGD, with the U.S. dollar dominating more than 85 percent of total transactions - reflecting its central role in Vietnam’s trade and finance.

3.4. Common FX Instruments

  1. Spot transactions: conducted daily between banks and corporate clients.
  2. Forward contracts: mainly used by importers to lock in future exchange rates.
  3. Swaps: used by banks to manage short-term VND/USD liquidity.
  4. Options: allowed under Circular 02/2021/TT-NHNN but still limited due to complexity and lack of international counterparties.

4. Forms and Strategies of Foreign-Exchange Trading in Vietnam

4.1. Traditional Bank-Based Trading

            Commercial banks are the principal intermediaries in traditional FX operations, performing three main functions:

  • Proprietary trading: buying and selling foreign currency to profit from rate movements.
  • Client-based trading: executing FX transactions on behalf of corporate or retail customers.
  • Hedging: using forwards, swaps, or options to mitigate exchange-rate exposure in their balance sheets.

            For example, a bank holding excess USD liquidity from remittances may sell USD forward to secure profits or buy VND if expecting domestic-currency appreciation.

4.2. FX Derivative Trading

            Derivatives enable investors and corporations to transform unpredictable exchange-rate risk into predictable costs.      In Vietnam, major banks such as Vietcombank, BIDV, VietinBank, Techcombank, and HSBC pioneer forward and swap transactions.

Typical applications:

  • Importers sign forward contracts to purchase USD three months ahead to avoid rising exchange-rate costs.
  • Exporters sell future USD receipts forward to lock in VND revenue.

            FX options remain limited, mainly due to regulatory restrictions and the absence of an active secondary market.

4.3. Foreign-Exchange Arbitrage

            FX arbitrage occurs when exchange-rate quotations among banks or currency pairs violate triangular parity.

            For example, if VND/USD, USD/JPY, and VND/JPY rates are inconsistent, traders can conduct a sequence of conversions to capture small, nearly risk-free profits.

            In Vietnam, such opportunities are rare because the SBV tightly manages the trading band and banks continuously update quotes via Reuters and Bloomberg systems.

4.4. Speculative FX Trading

            Some banks and institutional investors take speculative positions based on macroeconomic forecasts such as expecting USD depreciation when the Fed cuts interest rates.

            However, unlike global retail forex markets, Vietnam prohibits high-leverage online forex trading for individuals due to capital-control and consumer-protection concerns.

            International retail-forex brokers (e.g., Exness, IC Markets, XM, FXPro) are not authorized to advertise or operate locally. Consequently, speculation mainly occurs at the institutional level within regulated boundaries.

4.5. FX Trading in International Commerce

Export–import firms are the most active users of FX instruments. Their operations include:

  • Purchasing foreign currency forward to pay for imports.
  • Selling foreign currency forward to convert export proceeds.
  • Using swaps to balance short-term cash-flow mismatches.

            Example: a petroleum importer signing contracts worth USD 10 million monthly may hedge by entering forward contracts to prevent losses from USD/VND appreciation. Exporters in textiles, seafood, and electronics likewise maintain FX positions with major banks to stabilize revenues.

4.6. FX Transactions by Foreign Investors

            Foreign investors participate primarily through conversion of investment capital, profits, and dividends. The SBV requires all such conversions to go through designated investment-capital accounts (DICA) to monitor cross-border flows.

            In recent years, ample reserves and stable exchange rates have enabled smooth conversions for FDI and portfolio investors, enhancing Vietnam’s investment climate.