USING DRRIVATIVE CONTRACTS IN VIETNAM’S FINANCIAL MARKET
Bui Minh Tiet
1. Introduction
Derivative contracts are financial instruments whose value depends on an underlying asset such as stock indexes, equities, bonds, commodities, exchange rates, or interest rates. The use of derivatives in financial markets provides many benefits, including risk management, liquidity creation, and portfolio diversification. However, these instruments also entail significant risks if used improperly or without a well-defined legal framework.
In Vietnam, the derivatives market began to emerge in the mid - 2010s, with the first product being VN30 Index Futures. The market is currently developing within a gradually improving regulatory environment, expanding its product range and investor base.
2. Background of the Derivatives Market in Vietnam
2.1. Regulatory and Market Development
Vietnam’s derivatives market began attracting attention around 2014 - 2015. The legal foundation was established by Decree 42/2015/ND-CP (, issued on May 5, 2015 (effective July 1, 2015), which set out the framework for derivative securities and the derivatives market.
Under this decree, recognized derivatives include futures, options, forwards, and other derivatives with securities as the underlying asset. Subsequent legislation Decree 158/2020/ND-CP (December 31, 2020) and Circular 58/2021/TT-BTC provided further implementation details, covering trading, settlement, and clearing procedures.
In practice, Vietnam’s derivatives market currently offers mainly VN30 Index Futures and Government Bond Futures, though the latter remain relatively illiquid.
2.2. Current Status and Scale
Although over a thousand trading sessions have been conducted for VN30 Futures, the market remains nascent, product diversity and liquidity are limited. VN30 Futures contracts dominate trading activity, while five-year and ten-year government bond futures, introduced in June 2021, still record low trading volumes.
To participate, investors must open a derivatives trading account with a licensed brokerage and maintain a margin account with a clearing member.
2.3. Unique Features of Vietnam’s Market
Vietnam’s derivatives market is still in its infancy compared with the underlying securities market.
The legal framework, though established, continues to evolve. Some derivative products are restricted or reserved for professional investors.
Derivatives are used mainly for speculation rather than hedging, unlike in developed markets.
The use of derivatives by state institutions, banks, and corporations to manage exposure to exchange rates, interest rates, or commodity prices remains limited due to regulatory constraints and market underdevelopment.
3. Purposes and Methods of Using Derivative Contracts
3.1. Main Purposes
There are three primary purposes for using derivatives:
Hedging (Risk Management): Enterprises can use derivatives to protect themselves from adverse price movements of the underlying asset. For example, an exporter may use a currency futures contract to lock in an exchange rate, while a bank may use an interest-rate derivative to stabilize funding costs.
Speculation: Investors may buy or sell derivatives to profit from anticipated price changes in the underlying asset.
Arbitrage and Leverage: Derivatives allow traders to exploit price discrepancies between markets and to magnify exposure using leverage, thereby increasing both potential gains and losses.
3.2. Common Derivative Products in Vietnam
VN30 Index Futures, the first and most liquid product on the market.
Government Bond Futures (5-year, 10-year) introduced recently but still with low liquidity.
Although the law permits options, forwards, and over-the-counter (OTC) derivatives, in practice these products remain limited and often subject to differing interpretations under the Securities Law.
3.3. Illustrative Examples
A commercial bank holding a long-term government bond portfolio may fear that rising interest rates will reduce bond prices. The bank can hedge this risk by selling 10-year Government Bond Futures, thereby locking in the current price level.
An individual investor expecting the VN30 Index to rise can go long VN30 Futures. If the index increases, the investor profits; if it falls, losses occur.
3.4. Benefits of Derivative Use
Risk management: stabilize cash flows and costs by hedging price, interest rate, or currency fluctuations.
Capital efficiency: leverage allows investors to control a large notional value with relatively small capital outlay.
Price discovery: derivatives reflect future expectations, improving transparency and efficiency in the underlying market.
Market integration: linkages between the derivatives and spot markets enhance overall liquidity and market depth.
4. Challenges and Risks in Using Derivatives in Vietnam
4.1. Legal and Regulatory Risks
Despite Decrees 42 and 158 and Circular 58, the regulatory framework remains incomplete - especially regarding OTC derivatives, options, and commodity-based instruments.
Securities companies may trade derivatives only if duly licensed; fund management companies may use derivatives solely for hedging, not for speculation or leverage.
Enterprises that fail to comply with regulations risk penalties or suspension, leading to cautious participation and limited market growth.
4.2. Limited Liquidity and Product Diversity
Many derivative instruments, particularly government bond futures, lack liquidity, making it difficult to enter or exit positions and widening bid-ask spreads.
Product offerings are narrow mainly index and bond futures while commodity, foreign-exchange, and interest-rate derivatives remain underdeveloped.
4.3. Counterparty and Clearing Risks
Clearing members must manage clients’ margin accounts and risk exposure. If a client exceeds position limits or fails to meet margin calls, the clearing member or clearing house may close the position, potentially causing losses.
Effective risk management and collateral systems are essential but still developing in Vietnam.
4.4. Leverage and Speculative Risks
High leverage amplifies both potential returns and potential losses. A wrong market bet can wipe out investor capital.
Retail investors often lack experience with margin trading and risk management, resulting in volatility and occasional sharp losses.
4.5. Institutional and Capability Constraints
Many Vietnamese corporations and banks still lack derivative-risk management systems, trained personnel, and adequate information technology.
Limited data and research reduce the ability to use derivatives strategically.
A “speculative culture” often dominates over a “hedging culture,” reducing the intended stabilizing role of derivatives.