Understanding the OTC Market: Investment Expansion Opportunities for Investors

Besides traditional centralized exchanges, what is the OTC market and why does it attract the attention of the investor community? This article will help you better understand this important trading sector.

What Is OTC? Basic Concepts

OTC stands for “Over-the-counter,” meaning “Over-the-counter trading.” It is a decentralized market where transactions occur directly between brokers and investors, via computer networks or phone calls, instead of through a centralized exchange.

Unlike official exchanges, the OTC market operates based on direct negotiation mechanisms between buyers and sellers. Stock prices are not determined by a specific exchange but through bilateral agreements. Activities can take place at bank counters, securities firms, or entirely online via email and phone calls for convenience for all parties involved.

Comparing OTC Market and Centralized Exchange

To easily distinguish, here are the main differences between the two types of markets:

Main Advantages of the OTC Market

Creating More Investment Opportunities

The OTC market allows investors access to a variety of investment forms. Investors are not limited to listed stocks but can also invest in derivatives, CFD contracts, options, effectively diversifying their portfolios.

Derivative Products Support the Spot Market

For example, Bitcoin. Since 2017, when Bitcoin derivatives products emerged, their market capitalization has accounted for over 30% of Bitcoin’s market value. The trading volume of derivative contracts even surpasses Bitcoin’s spot trading volume, reflecting the increasing popularity of derivative products.

Enhanced Safety and Security

The OTC market today has been optimized and automated, with multiple layers of security similar to the centralized market. Professional brokers operate under the oversight of reputable financial regulatory organizations, helping investors trade with confidence.

Leverage to Amplify Power

In centralized markets, investors are usually granted a maximum leverage of 2x. Conversely, in the OTC market, investors can use higher leverage to amplify potential profits, although this also involves corresponding risks.

OTC Market in Vietnam

According to statistics, Vietnam currently has about 683,600 active enterprises, but only 1,575 companies have stocks traded on major exchanges, accounting for about 0.2%. This shows that the OTC market plays an important role as an open door for companies seeking capital without meeting the strict requirements of centralized exchanges.

In recent years, although more vibrant, the domestic OTC market remains an attractive investment channel with high profit rates. The market is increasingly popular as it expands operations on online websites and mobile apps, organized professionally.

There are many OTC exchanges and brokers in Vietnam providing diverse OTC stock information with stable activities. However, most focus on domestic OTC stocks and lack international products. Investors wanting to diversify options, such as investing in Bitcoin or OTC stocks from international companies, will need to find reputable and licensed brokers.

Important Notes When Investing in the OTC Market

Any financial market carries risks, requiring investors to thoroughly research:

Avoid Trading Low-Volume Products

Stocks with very low trading volume pose liquidity risks, making it difficult for investors to find counterparties. This can lead to risks of capital lock-in and difficulty in recovery.

Diversify Your Investment Portfolio

Investors should allocate capital across different asset types to reduce systemic risks. Concentrating all assets in a single financial product can cause significant losses.

Use Leverage Carefully

The OTC market offers high profitability but also involves strong price volatility. Financial leverage is a double-edged sword—it can quickly increase profits but also cause account “blowouts.” Using leverage should depend on the ability to analyze and deeply understand the products.

Understanding what OTC is and the associated risks will help investors make more informed investment decisions.