OTC Stock Market: What Investors Need to Know

In addition to the three main stock exchanges in Vietnam—HOSE, HNX, and Upcom—there exists a parallel but less known market—the OTC stock market. This market is becoming increasingly important for investors seeking investment opportunities outside traditional listed companies.

OTC - Basic Concepts

OTC stands for “Over-the-counter”—trading conducted directly between parties. It is a completely decentralized market where buyers and sellers negotiate directly without going through a centralized exchange. In Vietnam, this market is also known by various other names such as the network market, free stock market, or electronic quotation market.

Unlike traditional exchanges, the pricing mechanism in the OTC stock market is entirely based on bilateral negotiation between participants. Transactions are not limited by specific locations—they can occur at trading counters, via phone, email, or online, offering great flexibility for both buyers and sellers.

Comparing OTC Market with Traditional Exchanges

To better understand the differences, consider the key factors:

Organizational Structure: The OTC market operates through a network of brokers and investors, whereas HOSE and HNX are managed centrally by the exchanges themselves.

Trading Hours: HOSE operates from 9:00 to 14:45 Monday through Friday, HNX from 9:00 to 15:00 on similar days. Meanwhile, the OTC market supports 24/7 trading, providing maximum convenience for investors.

Product Types: Traditional exchanges only offer listed stocks and index futures contracts. The OTC stock market is more diverse—includes unlisted stocks, derivatives, CFDs, options, and many other financial instruments.

Contract Nature: On centralized exchanges, contracts are standardized and immutable. OTC allows full customization of contract terms according to the needs of each party.

Settlement Mechanism: The OTC market is much more flexible, even allowing T+0( same-day) settlement. Traditional exchanges follow the T+2( two-day) rule.

Advantages of the OTC Stock Market

Expanding Investment Opportunities

Compared to the centralized market, OTC stocks offer investors a treasure trove of options. While Vietnamese investors on traditional exchanges can only trade listed stocks or VN30 futures contracts, the OTC market opens doors for unlisted companies and various other financial products.

Additional Role of Derivatives

Since Bitcoin introduced derivatives in 2017, the market value of these instruments has increased by over 30% compared to spot trading value. As of June 2021, the trading volume of derivative contracts even surpassed that of direct Bitcoin trading, demonstrating the growing popularity of derivatives on the OTC market.

Enhanced Safety and Security

Today’s modern OTC markets are optimized, automated, and protected by multiple layers of security similar to centralized markets. Many professional OTC brokers are also coordinated by reputable financial institutions, allowing investors to trade with confidence.

Leverage Power

On centralized exchanges like HOSE and HNX, investors are typically granted a maximum leverage of 2x. Some Vietnamese brokerage firms do not even offer leverage for Upcom stocks or unlisted stocks. Conversely, the OTC stock market allows leverage up to hundreds of times, enabling investors to amplify potential profits.

The OTC Stock Market Situation in Vietnam

According to data from the General Statistics Office of Vietnam, by the end of 2020, the country had approximately 683.6 thousand active enterprises. However, only 1,575 companies had stocks traded on the three major exchanges—HOSE, HNX, and Upcom—accounting for just 0.2% of the total.

This indicates a significant gap: hundreds of thousands of companies cannot access the main exchanges due to strict requirements. This is why the OTC stock market has become an important “gateway,” allowing companies to raise capital without meeting stringent standards.

Major OTC platforms in Vietnam such as SanOTC, VN-Direct, and Vietstock provide rich and stable OTC stock information. However, these platforms mainly focus on domestic OTC products and have not yet diversified into international offerings.

Risks and Precautions When Trading OTC Stocks

Liquidity Risk

An OTC stock with very low trading volume faces high liquidity risk. Investors may find it difficult to find counterparties, leading to capital lock-in and difficulty in asset recovery when needed.

Diversify Your Portfolio

Investors should never concentrate all capital in a single product. Distributing investments across different asset classes helps mitigate systemic risks and protects the portfolio from sudden fluctuations.

Use Leverage Responsibly

While leverage can increase profits rapidly, it is a “double-edged sword” capable of destroying accounts if the market moves against you. Investors should only use leverage when they fully understand the product and have a solid risk management plan.

The OTC stock market, despite its high profit potential, requires investors to have in-depth understanding of its mechanisms, market analysis skills, and disciplined risk management. Only with these factors can investors effectively exploit the opportunities this market offers.