Vietnam has officially become a member of the World Trade Organization (WTO). This membership creates a need for more risk-hedging financial instruments to protect businesses as they compete in a global market that constantly fluctuates in exchange rates, interest rates, and commodity prices.
Futures Contracts – A Way Forward
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The first futures contract transactions in Vietnam were recently initiated between Techcombank (Vietnam Technological and Commercial Joint Stock Bank) and Dak Lak Import-Export Investment Company (Inexim Dak Lak), bringing visible benefits to coffee trading. Many direct transactions by Inexim Dak Lak on the London coffee futures market, through Techcombank as broker, have delivered gains not only to exporters but also to coffee farmers.
According to Mr. Van Thanh Huy, Director of Inexim Dak Lak and Chairman of the Vietnam Coffee Association, this internationally common trading method is critical in protecting businesses against strong coffee price fluctuations.
The futures market is where goods are bought and sold for delivery and settlement on a specific future date, but at a price agreed upon today. For example, when trading on the London coffee futures market, a company buys or sells coffee via a futures contract. The price is locked in at the time the order is placed—when the company finds the international coffee price most favorable—while physical delivery takes place later at the agreed date. Crucially, at delivery time, whether prices rise or fall, the goods are exchanged at the pre-agreed price.
Reducing Losses from Price Gaps
Previously, before trading directly on the London futures market, Vietnamese coffee exporters suffered significant losses due to price gaps. The difference between Vietnamese coffee’s offer price and the London futures price was often over USD 100 per ton.
For example, in early September of the previous year, the average offer price from Vietnamese companies was USD 540–550 per ton, with buyers only paying USD 520 per ton, while the London November 2004 futures price was USD 660 per ton, and at times even exceeded USD 700 per ton.
Now, thanks to direct trading on the London futures market, exporters no longer suffer from these large price gaps. Instead, they only pay a small brokerage fee to Techcombank—USD 10 per ton for trades under 200 lots (one lot equals 5 tons of green coffee) and USD 2 per ton for trades over 1,000 lots.
Beyond price hedging, as Techcombank has demonstrated, futures contracts abroad are also used as low-cost investment tools, allowing traders to profit from price differences, or as a mechanism for determining the real market price of physical commodities.
Today, many products beyond coffee are traded on international futures exchanges, including:
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Agricultural products: rice (Thailand), rubber (Tokyo), cocoa, white sugar (London, New York), palm oil, soyoil, soybeans (Malaysia, CBOT), wheat, cotton, orange juice, corn.
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Metals: copper, aluminum, tin, nickel.
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Financial instruments: Japanese Government Bonds (JGB), T-notes, T-bills, 3-month Eurodollar.
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Energy: gasoline, oil, natural gas.
As futures trading becomes more common across different commodities, many Vietnamese businesses say they will be more confident and competitive when entering global markets.
Hedging Tools Are Available in Vietnam
According to Mr. Truong Van Phuoc, Head of the Foreign Exchange Management Department at the State Bank of Vietnam (SBV), the financial tools to support exporters and importers are already relatively well established in Vietnam.
Over the years, the SBV has introduced common risk-hedging instruments such as:
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Spot contracts,
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Forward contracts,
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Swaps.
Other sophisticated tools include interest rate swaps, currency swaps, commodity futures, and currency options. Some commercial banks have even offered gold spot, forward, swap, and options trading on international markets.
Among currency instruments, options are considered the most effective for hedging payment risks. “Along with the risk of exchange rate fluctuations comes the opportunity for higher profits if used scientifically,” said Mr. Dao Hong Chau, Deputy General Director of Eximbank.
For example, a business that normally settles a contract with France in USD might request payment in euros instead, and simultaneously purchase a put option from Eximbank. Two months later, when the company receives payment in euros and the USD has weakened sharply against the euro, the company gains significantly compared to simply receiving USD.
After Eximbank introduced options trading more than two years ago, the SBV gradually allowed six other banks—BIDV, Agribank, Citibank, Vietcombank, ICB, and HSBC Ho Chi Minh City branch—to pilot options. However, few companies were aware of or used these products. As a result, options trading in Vietnam remains both underdeveloped and underutilized.
Other Financial Services
Another service available in Vietnam but little known among exporters is the margin account.
As reported by Saigon Times (TBKTSG):
“If you sign a forward contract to buy steel in 3 months for VND 100 million, and the actual price rises by 10%, you gain about VND 10 million (excluding fees). If the price falls 10%, you lose VND 10 million. In reality, you don’t need the full VND 100 million to execute the contract—just VND 10 million. You can open a margin account at a securities brokerage, which will lend you the money to trade a forward contract worth VND 100 million.”
HSBC Vietnam also recently executed the country’s first interest rate swap between USD and VND for a multinational company, involving USD 15 million. This allowed the client to secure the most competitive VND borrowing rate in the domestic market without facing USD/VND exchange rate risk.
Factoring is another service that supports businesses offering deferred payment terms. In this arrangement, a financial institution (the factor) advances payment to the seller and later collects from the buyer. By acting as a third party, banks help add working capital for sellers and facilitate domestic and international trade. This is a form of credit support where the factor purchases accounts receivable from the seller.
Mr. Truong Van Phuoc notes that these financial instruments—forward contracts, swaps, options, interest rate agreements (FRA), and swaptions—are standard tools in global markets. The key challenge is to increase awareness so that Vietnamese businesses can use these tools effectively to enhance business performance.
Businesses Must Be Proactive
Mr. Dao Hong Chau of Eximbank observes that many executives focus only on the risk of exchange rate volatility when discussing options and thus avoid using them. Out of caution or fear of complexity, they continue to settle transactions directly in USD. While this is not always harmful, when losses do occur, it may be too late to hedge.
Coffee exporters, for example, often wonder whether they need official permits to trade on the coffee futures market. As a result, they have not been proactive.
According to the Vietnam Coffee and Cocoa Association, since the state does not prohibit such activities, companies are allowed to participate. However, the government should soon establish a legal framework consistent with international practices to make it easier for businesses to integrate globally.
Mr. Doan Trieu Nhan, Vice President for External Relations of the Vietnam Coffee and Cocoa Association, also notes:
“The state needs a new mechanism to allow businesses to invest capital abroad. To join the futures market, companies must place deposits and secure trading positions in London. To participate, they must pay upfront, and after trading, the funds will be settled overseas.”
Currently, Vietnam has no formal regulations for participating in international futures trading. Temporarily, the State Bank of Vietnam has allowed Techcombank to pilot a one-year program as a broker, connecting Vietnamese exporters with international coffee traders on the London exchange. Yet, among the many coffee exporters in Vietnam, only a few have the capacity to participate.
Nevertheless, experts caution that no hedging strategy is perfectly risk-free. To maximize benefits, companies must thoroughly study the market, master technical analysis, and develop appropriate business strategies, using buying and selling options flexibly and effectively in the futures market.
Key Financial Instruments
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Spot: Both parties exchange foreign currency at the current market rate and settle within two business days. Suitable for companies with small, irregular foreign currency cash flows.
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Forward: Both parties agree to exchange a set amount of foreign currency at a predetermined rate on a specific future date, helping to lock in exchange rates and reduce risk. Ideal for businesses with stable foreign currency plans.
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Swap: Two parties simultaneously buy and sell the same amount of foreign currency (limited to two currencies) with different settlement dates. The exchange rate for both transactions is set at the time of the agreement. This allows businesses to take advantage of interest rate differences and manage foreign currency capital efficiently.