OTC Trading Market: What Investors Need to Know to Get Started

In addition to traditional OTC stock exchanges like HOSE, HNX, or Upcom, the OTC market has become an indispensable investment channel. But what is OTC, and why does it attract an increasing number of investors? Let’s explore this market in detail.

OTC: What Is a Decentralized Trading Market?

OTC stands for “Over-the-counter” — also known as “Over-the-counter trading.” It is a decentralized market where prices are established through direct negotiation between buyers and sellers, rather than through a centralized auction mechanism like traditional OTC stock exchanges.

In Vietnam, the OTC market is also called by other names such as network market, free stock market, or electronic quotation market. Transactions are not dependent on a fixed location and can occur at bank transaction counters, securities companies, or online via phone, email, providing convenience for both parties involved.

Unlike centralized markets operating through major exchanges, the OTC market functions based on a network of brokers, investors, news systems, and forums. Participants negotiate and agree on prices themselves, then execute transactions directly with each other through counters at securities firms or banks.

OTC Stock Exchanges and Centralized Trading Platforms: Main Differences

To help investors understand the differences, here is a detailed comparison between OTC stock exchanges and centralized exchanges:

Advantages of Trading on the OTC Market

Wide Range of Opportunities

The OTC market allows investors access to various investment forms. While centralized exchanges are limited to listed stocks or futures contracts, the OTC market offers derivatives, CFDs, options, and many other products, helping diversify investment portfolios more effectively.

Strong Support for Derivative Products

Taking Bitcoin as an example: since the emergence of Bitcoin derivative products in 2017, their market capitalization has accounted for over 30% of Bitcoin’s total market value. Even in June 2021, the trading volume of Bitcoin derivatives surpassed the spot Bitcoin trading volume, demonstrating the increasing appeal of derivative products.

Advanced Security and Safety

The OTC market today has been optimized and automated with multi-layer security, similar to centralized markets. Many OTC brokers are certified by reputable financial regulatory organizations, creating a secure trading environment for investors.

High Leverage Power

In centralized markets, investors are only granted a maximum leverage of 2x (or not granted leverage with Upcom) stocks. Conversely, the OTC market allows leverage up to hundreds of times, significantly amplifying profits with limited initial capital.

The OTC Market in Vietnam: Great Potential

According to the General Statistics Office, by the end of 2020, Vietnam had about 683,600 active enterprises, but only 1,575 companies listed on the three major exchanges (HOSE, HNX, Upcom), accounting for 0.2%. This figure shows that the OTC market plays an important role as a “gateway” for companies to raise capital without meeting the strict requirements of centralized exchanges.

In recent years, although less hot, OTC stocks remain an attractive investment channel with high profit rates. The domestic OTC market is increasingly popular, operating on websites and mobile platforms, organized professionally and no different from centralized OTC stock exchanges.

Major OTC stock exchanges and brokers in Vietnam include SanOTC, VN-Direct, Vietstock, providing diverse OTC stock information and stable operations. However, these platforms mainly focus on domestic OTC stocks and lack international products.

Important Notes When Investing in OTC Stock Exchanges

To trade effectively and safely, investors should pay attention to the following points:

Avoid Stocks with Low Trading Volume

A stock with very low trading volume faces high liquidity risks, making it difficult for investors to find counterparties when buying/selling. This situation can easily lead to “stuck” capital and difficulty in asset recovery.

Diversify Investment Portfolio

Do not concentrate all capital in one asset type. Allocating funds across different securities helps reduce systemic risks and protect assets more effectively.

Use Leverage Cautiously

Although high leverage can help increase profits quickly, it is also a “double-edged sword.” Overusing leverage without understanding the product can quickly lead to account liquidation. Investors should rely on their analytical skills and experience before using high leverage.

The OTC market offers abundant investment opportunities but also carries risks. With proper knowledge and disciplined trading, investors can leverage the advantages of the OTC stock exchange to build an effective investment portfolio.