ETF Dictionary

Exchange-traded funds (ETFs) are popular investment options in Vietnam. Understanding the bid and ask price is crucial for making informed investment decisions. This guide explores these concepts and their impact on Vietnamese ETF trading.

1. What is the Bid and Ask Price?

Think of the stock market as a giant marketplace where buyers and sellers meet to trade stocks. Buyers want the lowest price while sellers want sell the highest. This natural push and pull creates a range for each ETF or shares reflected in the bid and ask prices.

• Bid Price: The highest price a buyer is willing to pay for an ETF, representing the market’s demand side. (think buyer’s offer).
• Ask Price: The lowest price a seller is willing to accept for an ETF, representing the market’s supply side. (think seller’s asking price).
• The bid-ask spread: represents the cost of buying or selling an ETF. Generally, a lower spread indicates a more liquid ETF, meaning it’s easier to buy and sell without impacting the price.

Example: Let’s say you’re interested in the SSIAM VN30 ETF. You see the following quotes:

• Bid Price: 15,000 VND
• Ask Price: 15,500 VND

In there, an investor looking to purchase the ETF would pay VND15,500 and An investor looking to sell the stock would sell it at VND15,000. The bid-ask spread is 500 VND, signifying the difference between the highest buying offer and the lowest selling price per unit.

2. Why Bid & Ask Prices Matter

• • Informed Decisions: helps investors determine the potential cost of entering or exiting a position.
  • Market Sentiment: Narrow spreads often indicate strong market interest, while wider spreads can suggest lower liquidity or higher volatility.
  • Better Execution: By aiming for prices closer to the ask price when buying and closer to the bid price when selling, you can potentially minimize the spread cost.

3. What Affects Bid & Ask Price

1. Underlying Securities:

• Highly Liquid Underlying Assets: If the underlying assets are widely traded (like in a popular index ETF), many buyers and sellers are readily available, and lead competition keeps the spread narrow.
• Less Liquid Underlying Assets: If the underlying assets are less commonly traded, finding buyers and sellers is harder. This can lead to a wider spread.
• Example: An ETF tracking VN100 Index stocks, known for high liquidity and narrow spreads, will also have a narrow bid-ask spread. Conversely, an ETF tracking big-cap Vietnam stocks may have a wider spread due to lower liquidity.

2. Trading Volume: A high trading volume for an investment indicates a lot of activity, with frequent buying and selling. In contrast, a low trading volume signifies less activity, like a quiet shop. With fewer buyers and sellers around, the toll (spread) might be higher. Example: Monitoring the trading volume of the SSIAM VN30 ETF can help gauge its liquidity. If an investor wants to buy a large amount of ETF units beyond what’s available, the market maker may need to purchase more of the underlying securities, increasing the spread.

3. Market Conditions: When the overall market is calm and predictable, investors are generally more confident. This translates to a lower toll (narrower spread) due to less uncertainty. During periods of high volatility, like sudden economic downturns, uncertainty increases. This can make investors more cautious, leading to a higher toll (wider spread) as they demand a higher premium for taking on risk.

4. Who Sets Bid & Ask Price

In Vietnam’s stock trading, bid and ask prices are offered by various market participants including individual investors, institutional investors, market makers, LP/AP and brokerage firms.

• Individual Investors: who buy and sell stocks or ETFs for their personal investment portfolios.
• Market Makers: are entities that provide liquidity to the market by continuously quoting bid and ask prices for specific securities. They play a vital role in ensuring smooth and orderly trading by facilitating transactions between buyers and sellers.
• Liquidity Providers / Authorized Participants (APs): These are specialized firms or financial institutions designated by ETF issuers to create and redeem ETF shares. APs help maintain the liquidity and efficiency of ETF trading by arbitraging any differences between the ETF’s market price and its underlying net asset value (NAV).
• Brokerage Firms: as intermediaries, offer trading platforms and services to facilitate ETF transactions for both individual and institutional investors.

4. Who Sets Bid and Ask Prices in Vietnam?

In Vietnam s stock trading, bid and ask prices are offered by various market participants,

• Individual Investors: Like you, they buy and sell ETFs for their portfolios.
• Market Makers: These are institutions that provide liquidity by continuously quoting bid and ask prices, ensuring smooth trading.
• Authorized Participants (APs): Specialized firms that create and redeem ETF shares, helping maintain liquidity and efficiency.
• Brokerage Firms: They act as intermediaries, offering platforms for you to buy and sell ETFs.

Tips for Vietnamese ETF Newbies: Seek High-Volume ETFs: These tend to have tighter spreads due to their liquidity. Compare Spreads: Don’t just focus on the underlying holdings of an ETF. Consider the spread too! Stay Informed: By understanding bid and ask prices, you can make smarter investment decisions.

Bid and ask prices are a crucial part of ETF trading in Vietnam Market. By understanding , you can minimize your transaction costs, gauge market sentiment, and ultimately make informed investment choices!