I. Commodity Derivatives

Commodity derivatives are financial contracts, or financial instruments, whose value is based on the price of the underlying asset.

COMPARISON OF FURNITURE AND STANDARD FURNITURE IN COMMODITY DERIVATIVES TRADING

Advantages of investing in commodity derivatives

In recent years, investing in commodity derivatives has become more popular in the world. The main reason to mention is that this market is increasingly diversified in terms of investment portfolios. When the stock market and real estate are showing signs of decline. Investors have begun to gradually switch to the commodity investment channel.

Legality: This is an investment activity licensed by the Ministry of Industry and Trade under Circular No. 51. In the commodity derivatives market, all exchanges need to register members at the Commodity Exchange. Vietnam and listed on the Member List.

In essence: Derivative products are instruments born with the purpose of hedging risks for price fluctuations in the market of the product. Therefore, when investors participate in the market, it will be easy to profit.

About the level of risk: Commodity trading has a production cost, so the price fluctuation will not be too low compared to the time of purchase and will not increase too high based on the law of supply and demand. As a result, investors can feel more secure. In addition, the commodity derivatives market is interconnected with the Commodity Exchange in the world, so it is almost impossible for an individual or organization to manipulate the price.

• About the form of transaction: Two-way trading mechanism, instant order matching (T + 0) helps investors to seize the opportunity to earn profits based on market fluctuations even though the market is in turmoil. increase or decrease.
• About profit:  In the commodity derivatives trading market, the profit margin is unlimited. Because, if you are in an uptrend and investors buy orders when the price increases, then your profit will be bigger.
• High liquidity:  Vietnam’s commodity trading market connects with the international commodity market of 50 countries, forming a large-scale market with a liquidity of up to 5000 billion USD per day.
• Time flexibility:  With the characteristics of 24/24 trading time, investors can choose the commodity derivatives trading time frame that suits them.

Risks in commodity derivatives trading

• Leverage risk:  The reason why commodity derivatives trading market is considered risky is because futures market transactions are provided with leverage. In investing, this risk is a double-edged sword but still attracts a lot of venture capitalists. Large leverage makes it easier for investors to make profits, but if one is undisciplined, this can lead to losses.
• Risk of profits and large market volatility:  In the commodity derivatives market, the level of return is often proportional to the level of risk. To be able to own a large commodity contract with low costs, investors should choose futures contracts with high leverage. Therefore, business investors often choose to invest in commodities to be able to earn large profits, and at the same time, the risk of loss will be proportional.
• Time risk:  Commodity derivatives market is a global market, so the trading time depends on each region. There are three main trading sessions: Asian session, European session and American session. However, the US session of commodities will experience the most volatility. Therefore, investors should monitor the correct time zone as well as update the latest news to avoid the risk of strong price fluctuations.
• Risk analysis strategy:   Technical indicator analysis is one of the popular investment strategies. However, to have the right data, investors need time to master the methods. The application of commodity trading technical analysis will be more effective if the market is not volatile. On the contrary, if the commodity derivatives market has many big fluctuations in terms of technical analysis, it may be broken horizontally.

II. Commodity derivatives trading market

Is a market for issuing and trading commodity derivative products. Purpose of the commodity derivatives market:

• Offering a transparent, global investment opportunity and great profit potential for individual investors
  multiplying from the difference in commodity prices;
• Helping farmers to be proactive in selling products at high prices and determining the profit they will get in the future;
• As a tool to help businesses insure prices and avoid risks in the process of business and production.

There are two types of commodity derivatives trading markets in the world today:

Commodity Exchange is a legal entity where listed trading contracts take place. The Commodity Exchange uses an automatic order-matching system that regularly reports the status of orders throughout the trading session. Trading of products on the exchange is a centralized transaction protected and regulated by law. Commodity exchanges rarely offer any physical commodity, but primarily list futures contracts, allowing the commodity to be bought and sold at some point in the future at a predetermined price.

The commodity market is huge, trading up to trillions of dollars every day. The types of goods traded on the market are also very diverse and rich. Each exchange can list many types of goods, similarly each type of goods can be listed on many exchanges with different standards and specifications. Therefore, it is necessary to make sure in choosing reputable exchanges that have diverse products, high liquidity or simply that many people participate in trading at the floor.

Mercantile exchange is a legal entity providing, organizing and maintaining centralized Commodity Exchange on behalf of a country. Is a place to sign standardized contracts, perform the purchase and sale of spot goods (Spot Contract) and trade in the form of Future Contracts. The Commodity Exchange has an important role in strictly controlling all regulations, trading rules, ethical and financial standards for investors and members of the Department. This is the advantage of trading through the Department compared to trading on the over-the-counter market (OTC or peer-to-peer). Investors and trading parties must ensure a certain margin and Clearing payment, Commodity Exchange’s forwarding department will perform daily payment checks, ensuring correct commitment and performance of the contract according to the standards of the buyer and seller.

III. Vietnam commodity derivatives market

In Vietnam, forms of commodity derivatives trading such as forward contracts, futures contracts… have appeared in many forms for agricultural commodities such as aquatic products, seafood, coffee…

Specifically:

– Cashew nut trading floor through Ho Chi Minh City Securities Trading Center (2002).

– Can Gio Seafood Exchange (2002).

– Buon Ma Thuot Coffee Trading Center (2006).

– Saigon Thuong Tin Commodity Exchange (2010).

However, the number of transactions on the above exchanges / centers / exchanges is not much, the legality to ensure the rights and obligations of the participants is not binding enough, not bringing appropriate benefits. Therefore, most of these units only operate for a short time.

In April 2018, the Commodity Exchange of Vietnam (MXV) was officially licensed by the Ministry of Industry and Trade to come into operation, creating favorable conditions for the strong development of Vietnam’s commodity derivatives market. With many outstanding advantages in information technology, clearer regulations on legality, trading regulations and direct connection with global commodity exchanges. This birth of MXV has opened the door for the strong and continuous development of today’s commodity derivatives market.

Laws on the legality of commodity derivatives

In Vietnam, the Commodity Exchange of Vietnam (MXV) is the only entity permitted to organize a national centralized Commodity Exchange Market, licensed to operate indefinitely by the Ministry of Industry and Trade. Investors who want to participate in the market need to register and open a margin trading account at the Trading Members of the Vietnam Commodity Exchange.

History of Vietnam Commodity Exchange

– On December 28, 2006, the Prime Minister issued Decree No. 158/2006/ND-CP detailing the establishment of the Commodity Exchange and the purchase and sale of goods through the Commodity Exchange. .

– On September 1, 2010, the Ministry of Industry and Trade granted license No. 4596/GP-BCT to establish the Vietnam Commodity Exchange – Vietnam Commodity Exchange (MXV) (DBA: VNX). Under this license, the Ministry of Industry and Trade allows MXV to trade in steel, coffee and rubber.

– On April 9, 2018, the Prime Minister signed Decree No. 51/2018/ND-CP amending and supplementing Decree 158/2006/ND-CP detailing the Commercial Law on buying/selling activities. through the Commodity Exchange.

– On June 8, 2018, the Ministry of Industry and Trade signed license No. 486/GP-BCT to establish a Commodity Exchange, allowing the use of the official name for domestic transactions: Vietnam Commodity Exchange, transaction name. International: Mercantile Exchange of Vietnam (MXV).

– On June 18, 2018, MXV submitted a transaction file for inter-traded goods, approved by the Ministry of Industry and Trade according to the principles of Decree 51/2018/ND-CP.

– On June 20, 2018, MXV registered for a list of Legal Entity Identifiers (LEI) – a 20-character alphanumeric identifier used worldwide, to uniquely identify legal entities participating in the transaction. financial translation.

– On May 22, 2020, the Ministry of Industry and Trade signed Decision 1369/QD-BCT allowing MXV to list and trade items in the conditional business group (energy and rice groups). After getting permission from the Ministry of Industry and Trade, MXV listed RBOB Blended Gasoline, WTI Oil, Mini WTI Oil, Natural Gas, Low Sulfur Oil, Brent Crude Oil and Crude Rice.

– In June 2020, MXV increased its charter capital by VND 500 billion, affirming its position to rise to become a major Commodity Exchange.

– In July 2020, MXV put the CQG trading software system into operation to replace the Vision Commodity software system. This is the world’s most prestigious trading software system connecting over 40 global Commodity Exchanges, ensuring data transmission and having the largest trading data storage capacity. Up to now, the Vietnam Commodity Exchange has been able to provide many investors with the opportunity to trade agricultural products, industrial raw materials, energy, metals through trading members. Trading is done through CQG software that provides the ability to trade commodities with accurate market data along with a variety of technical analysis tools.

Commodities traded on the Vietnamese market are divided into 04 groups, each group has commodity codes listed as follows: