Category: Foundational Knowledge

Macroeconomics is the branch of economics that studies the overall performance and behavior of an economy as a whole, rather than individual markets or firms.

It focuses on big-picture economic issues such as growth, inflation, employment, and national income.

Key objectives of macroeconomics

1. Economic growth – increasing a country’s output and income
2. Price stability – controlling inflation
3. Full employment – reducing unemployment
4. Economic stability – minimizing business cycles and crises

Major macroeconomic policies

1. Fiscal policy

• Government spending and taxation
• Used to stimulate or slow down the economy
• Managed by the government

2. Monetary policy

• Control of money supply and interest rates
• Implemented by the central bank
• Tools include interest rates, open market operations, reserve requirements

Key takeaway

Macroeconomics helps governments, businesses, and investors understand economic trends and make informed decisions.

In trading (especially Forex), pips and lots are basic units used to measure price movement and trade size.

What is a Pip?

Pip = Percentage in Point
It is the smallest standard price movement in a currency pair.

Standard rules

• For most currency pairs:
  1 pip = 0.0001
  • Example: EUR/USD moves from 1.1000 → 1.1001 = +1 pip
• For JPY pairs:
  1 pip = 0.01
  • Example: USD/JPY moves from 145.20 → 145.21 = +1 pip

Some platforms show pipettes (fractional pips):

• 1 pip = 10 pipettes

What is a Lot?

A lot measures the size of your trade (how much currency you are buying or selling).

Common lot sizes

Pip Value (Why Lots Matter)

The pip value depends on the lot size.

Example (EUR/USD)

So:

• 20 pips profit with 1 lot ≈ $200
• 20 pips profit with 0.1 lot ≈ $20

Quick Summary

• Pip = how far price moves
• Lot = how big your trade is
• Pips × Lot size = Profit or Loss

Bid and Ask

Bid price

• The Bid is the highest price buyers are willing to pay
• If you sell immediately, you sell at the bid
• Think of it as: “What the market will pay me right now”

Ask price (also called Offer)

• The Ask is the lowest price sellers are willing to accept
• If you buy immediately, you buy at the ask
• Think of it as: “What it costs to buy right now”

Example

If EUR/USD shows

• Bid: 1.1048
• Ask: 1.1050

This means

• You can sell EUR/USD at 1.1048
• You can buy EUR/USD at 1.1050
• The difference (0.0002) is the spread

Why bid is always lower than ask

• The gap between them is the spread
• The spread represents:
  • Broker/market maker profit
  • Liquidity conditions
  • Transaction cost for traders

Key takeaway

• Buy → Ask
• Sell → Bid
• Spread = Ask − Bid

Long position

• Long (Buy)
• Opening a buy position with the expectation that the price will increase.
• A trader makes a profit when the market price moves up.

Short position

• Short (Sell / Short Selling)
• Opening a sell position with the expectation that the price will decrease.
• A trader makes a profit when the market price moves down.

Quick comparison

Long and short positions apply to the following markets

• Forex (FX) – currencies
• Stock market – especially stocks that allow margin trading or short selling
• Commodities – gold, oil, agricultural products
• Cryptocurrencies – spot, margin, and derivatives markets
• Derivatives markets – futures, options, CFDs, swaps

Key note

• Long positions are available in almost all markets.
• Short positions are not always available in spot markets and usually require derivatives or margin trading.

Centralized Market

A centralized market is a market in which buying and selling activities take place at a single central location or through a central system. All transactions are processed and supervised by a central authority or platform.

Key characteristics

• Operated and regulated by a central authority
• Transparent and publicly quoted prices
• High liquidity due to the concentration of buyers and sellers
• Easier to monitor and regulate

Examples

• Stock exchanges: HOSE, NYSE, NASDAQ
• Commodity exchanges: CME, ICE
• Centralized cryptocurrency exchanges (CEXs): Binance, Coinbase

Decentralized Market

A decentralized market is a market without a single central authority, where buyers and sellers trade directly with each other through a network or bilateral agreements.

Key characteristics

• No central governing body
• Prices may vary across participants or locations
• High flexibility
• Limited centralized control

Examples

• The interbank foreign exchange (Forex) market
• Over-the-counter (OTC) markets
• Decentralized cryptocurrency exchanges (DEXs): Uniswap, PancakeSwap
• Traditional agricultural markets

The difference between investment and speculation lies mainly in objectives, time horizon, decision-making approach, and risk level. In simple terms:

Investment

Allocating capital to an asset with intrinsic value, expecting it to grow sustainably over time and/or generate cash flow.

Key characteristics

• ⏳ Long-term (several years or more)
• 🔍 Based on fundamental analysis (financials, business model, management quality, industry outlook, etc.)
• 💰 Focused on stable, sustainable returns
• ⚖️ Controlled risk
• 📈 Willing to tolerate short-term volatility

Examples

• Buying shares of a strong company and holding for 5–10 years
• Investing in rental real estate
• Investing in a Shan Tuyet tea business to build a long-term brand and ecosystem

Speculation

Allocating capital to profit from short-term price movements, with little emphasis on intrinsic value.

Key characteristics

• ⚡ Short-term (days, weeks, or a few months)
• 📊 Heavily reliant on technical analysis, news, and market sentiment
• 🎯 Aimed at quick profits
• 🔥 High risk
• 💥 Significant losses if the market moves against expectations

Examples

• Short-term stock trading based on rumors
• Short-term forex or crypto trading
• Buying assets simply because “prices are rising fast”

Quick comparison

An important point

It is not the asset itself that determines whether an activity is investment or speculation, but how it is used.

Risk management is the process of identifying, assessing, and controlling threats or risks that could negatively impact an individual, organization, or project. The goal is to minimize the potential losses or harm by planning how to handle uncertainties effectively.

In finance or trading, for example, risk management involves strategies to limit potential losses—such as setting stop-loss orders, diversifying investments, or controlling position sizes—so that even if the market moves unfavorably, the damage is limited.

Risk management is crucial for capital preservation and achieving long-term objectives. Even the top global financial institutions prioritize it above all else.

Market sessions refer to the specific time periods during which major global financial markets are open. Because financial markets operate across different time zones, trading activity follows a continuous cycle, with varying levels of liquidity and volatility throughout the day.

Key Takeaway

Trading activity is not evenly distributed throughout the day.
Understanding market sessions helps traders choose the right time to trade, manage risk, and optimize performance.

A trading platform is a software system or application that allows users to buy, sell, and manage financial instruments in financial markets.

It is the tool traders use to access the market and execute trades.

What trading platforms allow you to do

• Place buy and sell orders
• View real-time prices and charts
• Perform technical analysis
• Manage positions, margin, and leverage
• Set risk controls (stop-loss, take-profit)
• Track account balance and performance

Types of trading platforms

• Desktop platforms – advanced tools for professional traders
  (e.g. MetaTrader, Thinkorswim)
• Web-based platforms – browser access, no installation
• Mobile platforms – trading on smartphones and tablets
• Institutional platforms – used by banks, funds, and prop firms

Leverage is the use of borrowed resources (money or financial instruments) to increase exposure to an investment or activity, aiming to amplify potential returns.

Leverage = controlling a larger position with a smaller amount of your own capital

How it works

When a company or investor uses debt instead of only their own capital:

• If returns are higher than the cost of debt, leverage amplifies profits
• If returns are lower than the cost of debt, leverage amplifies losses

So leverage increases both opportunity and risk.

Where financial leverage is used

• Corporate finance (business expansion, acquisitions)
• Investment & trading (stocks, derivatives, forex, crypto)
• Real estate (mortgages)
• Private equity & IPO structuring

Key takeaway

Financial leverage magnifies outcomes:
higher leverage = higher potential return + higher risk.

Margin is the money you deposit with a broker to open and maintain a leveraged trading position.

Margin is a security deposit, not a fee, that allows you to trade a larger position than your actual cash.

How margin works

• You deposit a small amount of capital (margin)
• The broker allows you to control a larger position
• The remaining amount is effectively borrowed from the broker

Key Margin Terms

Key takeaway

Key takeaway

Margin enables leverage, but poor margin management is the main cause of trading losses.

Behavioural Finance is a field of study that combines psychology and finance to understand how emotions, cognitive biases, and social factors influence investors’ decisions and financial markets.

Key Points:

• Unlike traditional finance, which assumes investors are fully rational, behavioural finance acknowledges that people often make irrational decisions.
• It studies common biases such as overconfidence, herding behavior, loss aversion, and confirmation bias.
• These biases can lead to market anomalies like bubbles, crashes, and mispricing of assets.
• Understanding behavioural finance helps investors and financial professionals recognize and mitigate emotional and cognitive errors in decision-making.

Impacts on Financial Markets

• Market bubbles and crashes often result from collective irrational behaviour driven by biases.
• Asset prices may deviate from their true value because of emotional trading.
• Investors’ decisions are influenced by mood, social pressures, and cognitive shortcuts rather than purely rational analysis.

Practical Applications

• Investment Strategies: Incorporating behavioural insights to improve decision-making and portfolio management.
• Risk Management: Recognizing biases helps in avoiding excessive risk-taking or panic selling.
• Financial Education: Teaching investors about common biases to foster better habits.
• Market Regulation: Regulators use behavioural finance to design policies protecting investors.

Summary

Behavioural Finance bridges the gap between psychology and economics, explaining why markets are not always efficient and why investor behaviour often deviates from rational models. Understanding these concepts can lead to smarter investing and better financial outcomes.

The Evolution of Technical Analysis reflects how market analysis has developed over time, from simple price observations to sophisticated data-driven models used in modern trading.

Technical analysis has evolved from visual chart reading to advanced, technology-driven systems, remaining a vital tool for understanding market behavior and timing trades.

“Without a solid foundation and fundamental knowledge, it is difficult to achieve profits or build wealth. Successful individuals and companies never rely solely on technical knowledge to grow their wealth—they combine it with strong fundamentals and a clear vision for long-term growth.“

The Eternal Sovereign – Thanh Nguyen

The International Financial System (IFS) is the global framework that enables the flow of money, capital, and financial services across countries. It connects national financial systems and facilitates international trade, investment, and economic cooperation. The international financial system consists of institutions, markets, rules, and instruments that allow governments, businesses, and individuals to conduct cross-border financial transactions efficiently and securely.

Functions of the International Financial System

• Facilitates international trade and investment
• Enables global capital allocation
• Supports economic growth and development
• Promotes financial stability and risk management
• Provides mechanisms for crisis prevention and resolution

A well-functioning international financial system helps reduce uncertainty, manage global financial risks, and support sustainable economic growth worldwide.

Portfolio Management is the process of selecting, managing, and monitoring a collection of investments (a portfolio) to achieve specific financial goals while balancing risk and return. Portfolio management involves deciding what to invest in, how much to invest, and when to adjust investments based on an investor’s objectives, risk tolerance, time horizon, and market conditions.

Main Components of Portfolio Management

• Asset Allocation
  Distributing investments among different asset classes such as stocks, bonds, commodities, cash, or alternative assets to manage risk.
• Investment Selection
  Choosing specific securities or instruments within each asset class.
• Risk Management
  Identifying, measuring, and controlling risks through diversification and other strategies.
• Performance Monitoring
  Tracking portfolio performance against benchmarks and investment objectives.
• Rebalancing
  Periodically adjusting the portfolio to maintain the desired asset allocation.

Types of Portfolio Management

• Active Portfolio Management:
  Managers actively buy and sell assets to outperform the market.
• Passive Portfolio Management:
  Focuses on matching market performance, often through index funds.
• Discretionary Portfolio Management:
  Managers make decisions on behalf of clients.
• Non-discretionary Portfolio Management:
  Managers provide advice, but final decisions are made by clients.

The main goal of portfolio management is to maximize returns for a given level of risk or minimize risk for a desired level of return.

Derivative securities are financial instruments whose value is derived from the value of an underlying asset, index, or rate. Common underlying assets include stocks, bonds, commodities, currencies, interest rates, or market indexes. Derivatives are primarily used for hedging risk, speculation, or arbitrage.

Main Types of Derivative Securities

• Futures Contracts
  Standardized agreements traded on exchanges, obligating the parties to buy or sell an asset at a predetermined price on a specified future date.
• Options
  Contracts granting the holder the right, but not the obligation, to purchase (call option) or sell (put option) an asset at a specified price within a defined time period.
• Swaps
  Customized, over-the-counter agreements between parties to exchange cash flows or financial instruments, commonly used to manage interest rate or currency risks.
• Forwards
  Private, non-standardized contracts between two parties to buy or sell an asset at an agreed price on a future date, typically traded over-the-counter.

Markets for Trading Derivative Securities

1. Exchange-Traded Market (ETM):
   This is where standardized derivative contracts are traded on formal exchanges such as the Chicago Mercantile Exchange (CME), NYSE, or Vietnam’s Commodity Exchange (MXV).
2. Over-The-Counter (OTC) Market
   This market involves direct trading between parties without going through formal exchanges. Contracts are often customized according to the agreements between the parties.

Liquidity Providers are entities or institutions that supply the market with liquidity, meaning they make it easier to buy or sell assets without causing significant price changes. They ensure there’s enough volume of assets available so trades can happen smoothly and quickly.

More details:

• In financial markets (like stocks, forex, or cryptocurrencies), liquidity providers often include banks, market makers, or large financial firms.
• They place buy and sell orders on exchanges or trading platforms to maintain active markets.
• By doing so, they reduce the bid-ask spread, which is the difference between the buying price and selling price, making trading more efficient and less costly.
• For example, in forex trading, liquidity providers are usually big banks or financial institutions that offer currency prices to brokers and traders.

Financial companies without liquidity providers become scammers by using large price fluctuations to cause clients to incur losses.

The Central Bank plays a critical role in a country’s financial and economic system. It is the main authority responsible for regulating and supervising the banking sector, implementing monetary policy, and maintaining financial stability. The Central Bank controls the money supply and interest rates to achieve economic goals such as controlling inflation, supporting employment, and fostering sustainable economic growth. Additionally, it acts as a lender of last resort to financial institutions in times of crisis, manages the country’s foreign reserves, and oversees the issuance of the national currency. Through these functions, the Central Bank helps ensure confidence in the financial system and promotes the overall health of the economy.

Main Functions of the Central Bank

1. Monetary Policy Implementation
   Regulates money supply and interest rates to control inflation, stabilize exchange rates, and promote economic growth.
2. Currency Issuance
   Sole authority to issue and manage the national currency in circulation.
3. Lender of Last Resort
   Provides emergency liquidity support to financial institutions facing difficulties to maintain system stability.
4. Bank Regulation and Supervision
   Ensures the safe and sound operation of commercial banks and financial organizations.
5. Maintaining Financial Stability
   Prevents and manages systemic risks to protect the stability of financial markets.
6. Foreign Exchange Reserve Management
   Holds and manages foreign currency reserves and intervenes in the forex market when necessary.
7. Government’s Banker
   Manages government financial transactions, public debt issuance, and administration.
8. Credit Control
   Coordinates credit volume and capital costs to foster balanced economic development.