What Is the OTC Market? A Comprehensive Guide for New Investors

Beyond traditional stock exchanges like HOSE, HNX, or Upcom, the OTC market has become an increasingly popular investment choice. But what is the OTC market and how does it operate? The following article will help you better understand this particularly financial market.

OTC Là Gì? Định Nghĩa Và Cơ Chế Hoạt Động

OTC is the abbreviation of “Over-the-counter” (trading at the counter), referring to a decentralized market where transactions occur directly between buyers and sellers through bilateral negotiations, rather than through an official exchange.

In Vietnam, the OTC market is also known by various other names such as the network market, free stock market, or electronic quotation market. Unlike centralized exchanges, trading activities on the OTC market are not limited to fixed locations and can take place via phone, email, or online platforms.

The main operating mechanism of the OTC market relies on a network of brokers, investors, and information systems. Instead of placing orders on a single exchange, participants negotiate prices for stocks and assets themselves, then execute transactions through brokerage firms’ or banks’ trading counters.

Sự Khác Biệt Giữa Thị Trường OTC Và Sàn Giao Dịch Tập Trung

To better understand what the OTC market is compared to traditional exchanges, consider the basic differences:

Những Ưu Điểm Chính Của Thị Trường OTC

Diverse Investment Opportunities

The OTC market offers many asset options that traditional exchanges do not provide. Investors are not limited to VN30 stocks or futures contracts; they can also access derivatives, CFDs, and many other financial instruments to diversify their portfolios.

Derivative Products Support the Trading Market

Taking Bitcoin as an example, since 2017 when Bitcoin derivatives products emerged, their market capitalization has accounted for over 30% of Bitcoin’s total market value. In June 2021, the trading volume of derivative contracts even surpassed Bitcoin’s spot market trading volume, indicating the increasing popularity of derivatives.

Enhanced Safety Features

The OTC market today has been optimized, automated, and layered with security measures similar to centralized markets. Many OTC brokers are regarded as professional when authorized and coordinated by reputable financial regulatory organizations.

High Leverage Amplifies Profits

In traditional markets, investors are only granted a maximum leverage of 2x on HOSE/HNX, and some stocks on Upcom may have no leverage at all. In the OTC market, investors can use leverage up to hundreds of times to amplify profits, although this also comes with corresponding risks.

Tình Hình Thị Trường OTC Tại Việt Nam

According to the General Statistics Office of Vietnam, by the end of 2020, the country had about 683,600 active enterprises, but only 1,575 companies were listed on the three main exchanges (HOSE, HNX, Upcom), accounting for less than 0.2%.

With the low number of listed companies, the OTC market becomes an important gateway for businesses to raise capital without meeting the strict requirements of centralized exchanges. Over the years, although more active than before, the domestic OTC market remains an attractive investment channel with high profit rates.

Currently, the domestic OTC market is developing further by expanding operations on both websites and mobile applications, organized professionally just like centralized stock exchanges. Many large-scale OTC platforms in Vietnam provide diverse OTC stock information and operate stably, though most focus only on domestic OTC stocks and have yet to develop international financial products.

Những Lưu Ý Quan Trọng Khi Đầu Tư Trên Thị Trường OTC

Although the OTC market offers many opportunities, investors should be aware of certain risks and follow basic principles:

Avoid Trading Low-Volume Stocks

A stock with very low trading volume carries high liquidity risk. You may face difficulties finding buyers/sellers, risking capital lock-in and difficulty recovering your initial investment.

Diversify Your Investment Portfolio

Do not put all your funds into a single asset class. Allocate your capital across different assets to reduce systemic risk. Regardless of the market, concentrating assets in one financial product can lead to significant losses.

Use Leverage Cautiously

While the OTC market provides high leverage to amplify profits, it is a double-edged sword. Leverage can help you grow assets quickly but can also wipe out your entire capital rapidly. Use leverage based on your analysis and risk management skills, avoiding overuse without proper understanding of the products.

Research Thoroughly Before Investing

Always gather detailed information about the assets you want to invest in, assess risks objectively, and only invest what you can afford to lose.

Understanding what the OTC market is and how it operates is a crucial first step toward successful investing. With the basic knowledge and precautions outlined above, you will be equipped with the necessary tools to participate in the OTC market more safely and effectively.