On Sunday, there was little progress in the local community of investors trading gold and foreign exchange at many local underground trading floors, after the arrest of the leader of a Hanoi-based underground gold floor on Friday.
However, the waves of fear over potentially losing their fortune held at underground trading floors were sent through many forums on the internet starting Friday evening.
On Friday evening, many investors said on local forums that they were panicked, as they could not continue to trade using VGX-Mega Trading Software like they usually did, and their accounts were frozen. The official website of VGX was not accessible.
By that night, they were frightened to learn that the chief of VGX had been arrested, and all of the accounts managed by the company were frozen for investigation.
One of the investors who trades via VGX, Xuan Thanh, from Hanoi, told newswire Vnexpress that he poured more than VND30 million (US$1,410) into an account on VGX more than three months ago because of a promotional program.
Accordingly, as of this June, investors who deposited at least VND10 million ($470) would be awarded 10 percent of the amount of money sent in.
After trading via the VGX floor for more than three months, he was unable to withdraw the money, and his account had been sealed. The worst-case scenario, according to Thanh, is that the money will not be recovered.
In explaining why he invested in trading online gold via the Vietnamese floor when he knows that it is banned, he said a VGX consultant invited him to take part in the trading because he knew Thanh was unemployed.
“They let me see the transaction history of a person who had made thousands of dollars, and then opened a demo account for me to try," he told Vnexpress. Thinking that this was an opportunity to make money, he agreed to join the site.
On a forum for people who trade forex (foreign exchange), a member named Trader0 called for other members to immediately pull their money out of Vietnam-based floors, as after the first arrest, local police may turn to the other underground brokerages.
Another member, BisQ, is worried because he has deposited money into an account at an underground floor. With the collapse of VGX on Friday afternoon, the most likely scenario will be a massive number of local investors flocking to these floors to withdraw their money, causing a liquidity problem, BisQ said.
As a rule, from March 2010, all active gold floors were forced to close, including gold floors founded by local businesses.
Therefore, all existing underground gold floors are operating as normal commodity exchange floors.
When an investors registers for an account at these floors, he will be given two software programs, one for commodity trading in Vietnam dong, and another for commodity trading in foreign currency. The second one is used for gold trading.
If an inspection takes place, the floor operator will immediately delete the second software program from all of the trading accounts of their clients so that no one can track them.
The Ministry of Public Security said that around 30-40 companies offering gold and foreign currency trading remain online. From there, a large amount of money raised from local investors is involved in trading gold illegally without the oversight of state management agencies, destabilizing the local gold and money market and paying no taxes.
It is estimated that each underground gold floor has attracted around 2,000-3,000 participants.
High yield, high risk
The attraction of this type of gold trading lies in huge leverage and high profitability, at a cost of high risk.
Specifically, for each US$100 initial deposit, investors can place a minimum order worth 0.01 lot, or $1,000. The full value of a standard lot is equivalent to $100,000.
With a leverage ratio of 1:100 or 1:150, investors can invest as much as 100 times or 150 times more than the value of their deposit.
Besides the legal risks involved when trading online gold, investors may face major risks from floor operators, as some specialists told Tuoi Tre that most floors have tools to intervene in the transaction process of investors.
With these tools, the operators can delay the order of a client, and an investor may lose everything in the blink of an eye.
Meanwhile, the contracts between the investors and the brokers are questionable, and have no binding responsibility to the latter, posing the risk of litigation for the former.
Many investors have suffered huge losses amounting to hundreds of thousands or even millions of dollars, while very few have won big.
"There is a winner, who initially had $7,500 in his account. After playing for 11 consecutive days, he raked in $35,000. But instead of stopping, he carried on for six days and lost it all "- N., a gold trader, told Tuoi Tre.
To place an order, investors have to pay two types of charges: a commission fee worth $10-40 per 100 taels of gold, and another fee based on the bid-ask spread, which may cost them $50 per 100 taels more (1 tael = 37.5 grams).
"At VGX, the commission fee was $30 per lot, cheaper than some other places, which often collected $50. With a leverage ratio 1: 200, it is more attractive than the majority of the floors, which have a 1:100 ratio. Several newly opened floors are ready to donate another $100 to attract new customers," Vnexpess quoted investor Huy Hoang as saying.
In March this year, Nguyen Quang Huy, director of the SBV’s Foreign Exchange Management Department, confirmed that trading in foreign currencies or gold via foreign exchange (forex) trading floors is illegal in Vietnam, as currently there are no specific regulations on business activities through forex trading platforms.
Forex trading conducted through accounts is a form of margin trading in which the net worth of the accounts are constantly re-evaluated according to the fluctuations of currency exchange rates or changes in the prices of commodities and raw materials, including gold, said Huy.
“Forex trading via exchange floors is not a kind of trading activity intended to satisfy the foreign exchange needs of a nation, but it is purely speculation,” he said.
According to Huy, local organizations and individuals can only carry out foreign exchange transactions in accordance with SBV rules with an authorized credit institution.