USING derivative products is expected to help investors predict the future movement of securities and lock in profits expected from their invested assets.
A derivatives market, which will start operations in August, is expected to draw more capital to the Vietnamese securities market for the rest of this year, experts told a seminar in HCM City last Saturday.
A derivative is a financial tool with a price and value that is dependent upon another financial tool or underlying asset.Derivatives can either be traded over-the-counter (OTC) or exchange-traded with four popular kinds of contracts: futures, options, swaps and forwards.
Nguyen Duy Linh, director of Saigon Securities Incorporation’s individual customers brokerage division, told a conference that the first derivatives product to be traded in August would be the futures contract for the VN30 Index. VN30 is a sub-index on the Ho Chi Minh city stock exchange that captures the performance of the 30 largest companies by market capitalisation. Linh was addressing a conference on derivatives and scenarios for the stock market for the year’s second half.
Using derivative products could help investors predict the future movement of securities and lock in profits expected from their invested assets, he said.
“In the derivatives market, people can make huge transactions with small amounts of money and therefore it provides the benefit of leverage,” he said, adding that it is a great risk management tool and if applied judiciously, can produce good results and benefit to investors.
“In addition, investors can buy and sell the same futures contracts in a day to get the benefit of liquidity or stop loss to avoid price fluctuations overnight. This advantage is also a popular investment strategy” of intraday trading, he said.
“The products offer opportunities but also risks as well,” he said, adding that investors should understand their personality to choose a suitable trading strategy, as well as understand the products and follow trading discipline.
According to experts, although MSCI, a US investment research firm, declined to place Vietnam on its watch-list for emerging market status which would be up from Vietnam’s current “frontier market” status, the market performed well in the first half of the year, with the VN-Index and HNX-Index both increasing strongly.
For example, VN-Index surged 16.8 per cent in the first half of the year, reaching 776.47 points, and the HXN-Index gained 23 per cent to 99.14 points. Trading liquidity also improved.
More noticeably, foreign investors’ trading also grew during this period. Last year, there was a very strong net withdrawal of up to 6.76 trillion dong (Bt10.1 billion). But in the first six months of 2017, foreign investors poured into the Vietnam’s stock market over 9.04 trillion dong.