What is an OTC Exchange and Why Do Investors Need to Know Clearly?

Besides the official exchanges like HOSE, HNX, or Upcom, have you ever heard of the OTC market? This is an investment field that opens up many opportunities but also carries potential risks. Let’s explore the OTC exchange thoroughly to make smart investment decisions.

What Is an OTC Exchange? Understanding the Nature of the Over-the-counter Market

OTC stands for “Over-the-counter” — or trading at the counter. This name reflects the fundamental characteristic of the OTC market: it is a decentralized market where buyers and sellers negotiate directly with each other to determine prices without relying on a centralized exchange.

Unlike OTC markets in other countries, in Vietnam, this market is also called by various other names such as the network market, free stock market, or electronic quotation market. Notably, transactions do not occur at a fixed location but can be at bank counters, securities companies, or entirely online via email or phone.

Instead of placing orders on the HOSE or HNX systems, brokers and investors negotiate directly on the OTC platform. Initially, this was only a secondary market, but now it has developed into a professional market, coordinated by reputable brokers.

How Is the OTC Market Different from Centralized Exchanges?

To compare clearly, look at the main differences between the two types of markets:

Trading hours: OTC operates 24/7 whenever, whereas centralized exchanges are only open during business hours (HOSE from 9:00-14:45, HNX from 9:00-15:00, Monday to Friday).

Types of securities: OTC offers unlisted stocks and many diverse financial products, while centralized exchanges only trade listed stocks or index futures.

Contracts: On OTC, you can customize contracts according to your needs, but centralized exchanges use standardized contracts.

Settlement: OTC is more flexible with T+0 mechanisms, whereas centralized exchanges follow T+2 regulations.

Why Should Investors Pay Attention to the OTC Market?

More diverse investment opportunities: The OTC market opens the door for those wanting to access derivatives, CFDs, options, and many other financial tools that centralized exchanges do not have.

Derivatives support the spot market: Taking Bitcoin as an example, since 2017, the trading volume of Bitcoin derivatives has accounted for over 30% of the market value. In June 2021, derivatives volume even surpassed spot trading volume.

Security comparable to centralized exchanges: Today, OTC markets have been optimized, automated, and secured with multiple layers, comparable to centralized exchanges. Professional OTC brokers are licensed by reputable regulatory organizations.

Stronger leverage: While HOSE/HNX only allows a maximum leverage of 2x, OTC platforms permit up to hundreds of times, helping investors amplify profits.

Is the OTC Market in Vietnam a Real Opportunity?

Currently, Vietnam has about 683,600 active enterprises, but only around 1,575 companies are listed on the three main exchanges (accounting for 0.2%). This is why the OTC platform becomes an important gateway, helping many companies raise capital without meeting the strict requirements of centralized exchanges.

In recent years, the domestic OTC market has cooled down but still attracts investors due to high profit margins. Platforms like SanOTC, VN-Direct, Vietstock have become professional platforms providing diverse OTC information and stable operations.

Risks You Need to Avoid When Trading OTC

Avoid low-volume stocks: Stocks with low trading volume are prone to liquidity issues because it’s hard to find counterparties, making it difficult to buy/sell when you want.

Diversify your portfolio: Don’t put all your money into one asset class. Allocate capital across different products to minimize risks.

Use leverage cautiously: Although high leverage can increase profits quickly, it is also a double-edged sword. If the market moves against you, you could lose your entire account. Only use leverage when you truly understand the product and the market.

What is an OTC platform? It is a real opportunity for investors, but success or failure depends on your knowledge, analytical skills, and discipline. Learn more before taking action.