“Mastering Margin Trading: Strategies for Success and Risk Mitigation from VPBankS’s Chairman”

Risk management skills are paramount for investors in the stock market. Despite this, many tend to overlook this skill in their investment journey. They get caught up in maximizing profits, forgetting that risk is an inherent part of every investment decision.

In the second installment of The Investors series, Mr. Vu Huu Dien, Chairman of VPBank Securities (VPBankS), joined as a special guest. Together with host Pham Minh Huong – Chairman of VNDirect, the two chairmen of the securities companies shared interesting stories and valuable lessons learned from decades in the industry.

During the conversation, the guest and host emphasized risk management skills, which many stock investors often overlook or fail to pay attention to, leading to failure and exiting the market.

Mr. Dien pointed out that profits and risks go hand in hand; high risk can bring high returns, but it can also result in total loss. Therefore, the most important skill for investors, be they institutional or individual, is risk management.

According to the Chairman of VPBankS, risk management depends on an investor’s financial health and economic potential. Some investors allocate only a small portion of their financial resources to stocks and are willing to risk losing it all if they fail. This loss does not cause any financial strain, but if successful, they can double or triple their investment. However, for investors without substantial financial strength who seek stability and are averse to high risk, risk management becomes crucial to ensuring financial safety.

Drawing from his 24 years of experience in the field, Mr. Dien suggested using financial leverage (margin) to seize opportunities when the market is about to reach a buying point. High-risk investors can invest all their money and borrow an additional 100% through margin, known as a 1-1 margin ratio or all-in in one day. This strategy offers extremely high investment efficiency, so correctly timing the bottom can result in substantial profits. However, if the market continues to decline, investors risk facing a margin call as the value of their collateral decreases.

For investors without strong financial resources, a cautious investment strategy is recommended. When identifying a buying point, investors can divide their cash into four parts. Each time the market drops or stagnates, they can invest another 1/4th. Once they’ve spent all their cash, if the market remains uncertain or stagnant, they can choose to wait. When the market shows signs of recovery, investors can use margin to continue investing.

However, according to the Chairman of VPBankS, using margin also requires a cautious approach, applying a similar method by dividing it into four parts and investing incrementally. This strategy reduces risk because no one can accurately pinpoint the market’s bottom.

The former fund manager with a $2 billion AUM also warned that during a bull market, many investors are willing to take on higher risks and buy more. However, it’s essential to note that failing to sell at the right time and a subsequent market decline can increase the risk of a margin call due to financial leverage at higher prices.

The guest on The Investors shared one of his personal strategies: when a stock’s price reflects its intrinsic value, investors should start reducing their margin loans. This process should be faster than the buying process. Specifically, they can start by selling 50% of the shares purchased on margin and then selling the remaining 50%. If the market shows no signs of further growth, investors should gradually sell the stocks in their portfolio to recover their capital and realized profits.

Host Minh Huong added that there are two traps in investing: the risk trap and the profit trap. Inexperienced investors may fall into the risk trap, but experienced ones often get stuck in the profit trap.

The Chairman of VPBankS added that when investors have achieved a certain level of profit, their psychology is usually exuberant, and this excitement can lead to future losses. To protect their assets and maintain prosperity, investors can transfer a portion of their profits from stock investments to safer channels, such as bank deposits for a period to calm their psychology or diversify their investment portfolio through other channels such as real estate investment. This is known as “not putting all your eggs in one basket.”

Mr. Dien emphasized that when investors are in a state of high excitement after victories in the stock market, their enthusiasm can lead to unnecessary risky decisions. Transferring profits to another investment basket and continuing to observe the market will help investors preserve their capital and realized profits while minimizing future risks.

“The Investors” is an inspiring talk show series hosted by CafeF and VPBank Securities (VPBankS), airing every Tuesday at 10:00 AM.

VPBank Securities Joint Stock Company (VPBankS) is the only securities company in the VPBank ecosystem with a leading charter capital in the market, amounting to VND 15,000 billion. VPBankS is also among the top 10 securities companies with the largest margin outstanding in the market and has significant room for future growth. Moreover, VPBankS has built a comprehensive ecosystem, integrating personalized products, platforms, and services tailored to individual risk appetites, fully meeting the investment needs of its customers.