OTC Trading Market: Concept, Operating Mechanism, and Essential Knowledge for Investors

What Is OTC and Why Is It Important for Investors?

In the financial system, alongside traditional centralized stock exchanges like HOSE, HNX, and Upcom, there exists another trading market called OTC trading platform. This is an investment channel that is equally important, especially for investors looking to expand their asset development opportunities.

“OTC” stands for “Over-The-Counter,” meaning direct trading at the counter, without going through a centralized exchange. Unlike major stock exchanges, OTC trading platforms operate based on a decentralized mechanism, where buyers and sellers negotiate to determine prices. These transactions can take place at bank counters, securities firms, or entirely online via phone and email.

In Vietnam, OTC trading platforms are also called network markets, free stock markets, or electronic quotation markets. Notably, transactions are not dependent on fixed hours and can occur 24/7, providing high flexibility for investors.

Basic Differences Between OTC and Centralized Stock Exchanges

Key Advantages of the OTC Market

Expanding Investment Options

The OTC market offers a range of financial instruments that traditional exchanges do not. Investors are not limited to listed stocks or VN30 index futures but can also access derivatives, options, and many other tools to optimize their portfolios.

Supporting Spot Market Trading

Derivative products play an important role in supporting spot trading. Taking Bitcoin as an example, since 2017, Bitcoin derivatives have accounted for over 30% of the total market value. In June 2021, derivative trading volume even exceeded spot volume, demonstrating the increasing popularity of these tools.

Enhanced Safety and Security

The OTC market today has been optimized and automated with multiple layers of security comparable to centralized exchanges. Many professional OTC brokers are authorized by reputable financial regulatory organizations, providing peace of mind for investors.

Boosting Financial Power with Leverage

Unlike traditional exchanges that only offer maximum 2x leverage, OTC trading platforms allow investors to use leverage up to hundreds of times. This can significantly amplify profits but also comes with higher risks.

The OTC Market Situation in Vietnam

According to data from the General Statistics Office, by the end of 2020, Vietnam had about 683,600 active enterprises. However, only 1,575 enterprises traded on the three major platforms (HOSE, HNX, Upcom), accounting for just 0.2%. This figure shows that the OTC market is an open door for companies to raise capital without meeting the strict requirements of centralized exchanges.

In recent years, although activities have been somewhat adjusted, OTC stocks remain an attractive investment channel with high potential returns. The domestic OTC market is increasingly organized professionally, operating on both websites and mobile apps, much like centralized stock exchanges.

Reputable OTC platforms and brokers in Vietnam include SanOTC, VN-Direct, Vietstock. These platforms provide diverse OTC stock information and stable operations. However, most focus only on domestic OTC stocks. To access international products like Bitcoin or OTC stocks from abroad, investors need to choose reputable brokers licensed internationally.

Risks and Precautions When Trading on OTC

Warning About Low Trading Volume

A stock with low trading volume poses liquidity risks. Investors may face difficulties buying/selling when they cannot find counterparty orders, leading to capital lock-in.

Diversify Investment Portfolio

Instead of concentrating all capital in one asset class, investors should allocate funds across different products to reduce systemic risk. This strategy applies to all markets, not just OTC.

Use Leverage Cautiously

While high leverage can help increase profits quickly, it is also a “double-edged sword” that can lead to account liquidation. Investors should only use leverage when they fully understand the product and have adequate analysis skills, avoiding overuse.

Conclusion

The OTC market offers diverse and flexible investment opportunities for Vietnamese investors. However, like any financial market, success requires thorough research, proper risk management, and patience. Before starting to trade on the OTC trading platform, make sure you understand its operating mechanism, available products, and potential risks.