Stock Knowledge From A to Z for New Investors

In recent years, the stock market has become one of the most attractive investment channels. When production and commercial activities face difficulties, many people turn to the stock sector as an opportunity to increase income. Millions of new investors have entered the market in recent years, and this trend continues into 2022. To participate effectively, first-time investors (first-time investors) need to equip themselves with basic stock market knowledge about how the market operates, types of trading products, and suitable investment strategies.

What Is the Stock Market? Basic Concepts

According to legal regulations, securities are documents or electronic evidence confirming the lawful rights and interests of the owner regarding assets or equity of issuing organizations.

Main types of securities include:

• Shares, bonds, fund certificates
• Derivative securities
• Warrants, rights to purchase shares, depository certificates
• Other types of securities regulated by the state

Shares - The Most Common Type of Security

Shares are the most widely known securities. They confirm ownership of a portion of the issuing company’s/enterprise’s equity. There are two structural types:

Common Shares: Linked to the company’s business results, with no predetermined dividend level

Preferred Shares: Including shares with priority dividend rights or special voting rights

Shares can be in paper form with the company’s name, face value, issuance year, or electronic shares with information stored in a computer system.

Bonds - Debt Instruments

(Bonds) or debt certificates are securities confirming the rights of the owner and the debt repayment obligation of the issuer (company, organization, government). Simply put, bonds are a form of borrowing where the issuer commits to paying interest and principal within a specified period.

Bond buyers receive fixed interest regardless of capital utilization efficiency but do not have management rights over the borrower.

Fund Certificates - Shares of Investment Funds

Fund certificates confirm the ownership rights of investors when contributing capital to a public investment fund. This fund is contributed to by many investors to jointly invest in securities or other assets to earn profits. When participating in a public fund, investors must purchase fund certificates to confirm their capital contribution.

Derivative Securities - Advanced Instruments

Derivative securities are contracts that define the rights and obligations of the parties. Their value depends on one or more underlying assets such as securities, market indices. Types of contracts include: options, futures, forward contracts.

Distinguishing features of derivatives from underlying securities:

• Traded on specialized derivative markets
• No limit on issuance volume
• Settlement at a specific future date
• Profits are calculated daily

###Warrants - Secured Purchase Rights

Secured warrants are securities with collateral assets issued by securities companies. Each warrant usually comes with a unique underlying security code. When holding warrants, investors have the right to buy the underlying security at a price determined at the maturity date.

###Share Purchase Rights - Advantage for Shareholders

Share purchase rights are securities issued by companies in tranches, giving existing shareholders priority to buy new shares at a lower price than the listed price. Each outstanding share will come with a purchase right, and the quantity can change with each issuance.

Depository Certificates - International Trading Instruments

Depository certificates are issued when shares from foreign companies or enterprises are deposited into a depository bank. The bank then issues depository certificates based on the exchange ratio between the issued certificates and the underlying shares.

Stock Market - Trading Venue

How Does the Stock Market Operate?

The stock market (also called the stock exchange) is a space where investors buy and sell securities at trading floors or through brokerage firms.

The market is divided into two main parts:

Primary Market: Where organizations or funds raise capital by issuing shares for the first time. This is where shares are created.

Secondary Market: After issuance in the primary market, investors continue to trade shares here. These transactions do not generate new money but transfer ownership rights among participants.

The Important Role of the Stock Market

The stock market has a profound impact on the economy:

• Promotes the development of joint-stock companies through information disclosure, enterprise valuation, underwriting, and distribution of securities, attracting investor capital
• Provides criteria for investors to assess the development level of enterprises
• Offers high liquidity, enabling quick buying and selling
• Helps the government and enterprises mobilize foreign capital through bond and stock issuance

Important Stock Concepts and Terms

New investors entering the market should master the following concepts:

Market Terminology

• Listed Company: A company offering shares to the public (shares will be listed on the exchange and depository center)
• IPO (Initial Public Offering): The first issuance of securities to the public
• Market Capitalization: The total value of a company based on its outstanding shares
• Offer Price: The initial listing price of the issued shares
• Securities Portfolio: The collection of all stock codes in an investor’s account
• Yield/Profitability Ratio: The total dividends received by investors from holding shares
• Annual Report: The company’s yearly published report
• Alpha Coefficient: Return rate adjusted for risk
• Beta Coefficient: A measure of the risk of a stock or portfolio
• Price-to-Book Ratio: Comparing market price to book value per share
• Bankruptcy Risk Coefficient: Helps investors assess risk and forecast bankruptcy probability
• Dividend Yield: The relationship between dividends received and the purchase price of shares

Trading Order Terms

• Limit Order (LO): Buy/sell order at a specified or better price
• Market Order (MP): Buy at the lowest selling price or sell at the highest current price
• ATO Order: Order executed at the opening price of the morning session (before 9:15 AM)
• ATC Order: Order executed at the closing price of the afternoon session (14:45)
• PLO Order: Buy/sell order at the closing price after the ATC session ends
• Break: A phenomenon where stock prices surge past a specific price range
• Matching Price: The price set by investors when executing a trade
• Long (buying up) / Short (selling down): Trading forms in derivatives
• Stock Screening: Using criteria like upward momentum, accumulation, market cap, liquidity to find suitable stocks
• Safety Margin: The difference between market price and intrinsic value of a stock

Price Terms

• Face Value: The amount printed on a bond or share at issuance
• Market Price: The buying/selling price of a stock on the trading market
• Listing Price: The initial price of a stock listed in the first trading session
• Opening Price: The closing price of the previous trading day
• Floor Price: The lowest trading price in a session
• Ceiling Price: The highest trading price in a session
• Settlement Date (T+3): Three working days after order matching (excluding holidays). When buying, funds are transferred to the securities account after 3 days; when selling, funds are transferred to the bank account after 3 days
• Price Trend: The market has three types of trends: uptrend (Uptrend), downtrend (Downtrend), sideways (Sideway)

Basic Definitions of Stock Trading

• Stock Index (Index): A statistical measure based on a list of stocks according to a certain ratio. For example, VNIndex represents all codes on HOSE, VN30 is an index of the top 30 stocks by market cap and liquidity
• Margin Trading (Ký quỹ): A trading method where investors borrow money from securities companies to buy stocks
• Trading Volume: The number of shares traded within a period (e.g., in one day)
• Short Selling: Selling securities you do not own by borrowing from others, expecting to buy back later
• Price Fluctuation Range: The limit range; on HOSE +/− 7%, on HNX +/− 10% compared to the reference price (closing price of the previous session)

Market Participants

• Issuer: Issues securities to raise capital
• Investor: The person executing buy/sell transactions
  • Individual investors: Those with capital seeking additional income
  • Institutional investors: Investment companies, insurance companies, financial firms, commercial banks with large capital
• Securities Company: Provides management, consulting, brokerage, underwriting services
• Related Organizations: State management agencies, stock exchanges, credit rating agencies, technology service companies

Principles of Stock Market Operation

Five basic principles investors need to understand:

• Principle of Competition: Issuers compete to sell securities, investors compete to buy at good prices and high profits
• Principle of Fairness: All participants must comply with common regulations
• Principle of Transparency: Issuers are obliged to provide regular, transparent, and complete information about securities
• Principle of Intermediation: Transactions between investors and issuers must go through securities companies
• Principle of Centralization: Transactions are only conducted on official trading floors under government supervision

Stock Trading Hours

Trading floors (Ho Chi Minh City, Hanoi, UPCOM) operate within these hours:

• Morning: 9:00 AM to 11:30 AM
• Afternoon: 1:00 PM to 3:00 PM
• Days: Monday to Friday (excluding weekends, holidays)

How to Read Stock Price Tables

Price tables are the most important tools for new investors (F0). You need to understand the color codes:

• Green: Price increased compared to the reference price
• Red: Price decreased compared to the reference price
• Yellow: Price unchanged compared to the reference price

Buying and Selling Stocks - Two Methods

Investors can execute buy/sell transactions via two methods:

• Manually placing orders on trading software
• Placing orders through brokerage firms

Opening a Securities Account - The First Step

Before trading, investors need to choose a suitable securities company. Considerations include:

• Competitive transaction fees
• Margin ratio applied
• Margin interest rate

You can open an account directly at a securities company, bank, or through a brokerage firm. Required information includes: permanent address, email, phone number, bank account details.

After opening an account, the company will provide an account number and instructions for depositing funds. With at least 500,000 VND in the account, you can start trading stocks.

Important Notes for Stock Trading

Choosing a Trading Floor

In Vietnam, there are three main exchanges:

• HOSE (Ho Chi Minh City Stock Exchange)
• HNX (Hanoi Stock Exchange)
• UPCOM (for unlisted public companies)

Additionally, many international exchanges operate in Vietnam. Regardless of the chosen exchange, ensure that it:

• Has a reputable and long-standing operation history
• Is managed by domestic securities authorities or reputable international organizations

Master Basic Orders

New investors should focus on three basic orders: ATO, ATC, LO. Later, they can improve skills with other orders like MP, MTL, MOK, MAK.

Summary

The basic stock market knowledge outlined above is the foundation that first-time investors need to master when entering the market. To invest successfully and sustainably profit, you should continue learning more knowledge and gaining experience, developing your ability to react quickly to market fluctuations. Acting promptly, thinking carefully, and managing risks scientifically will be the keys to success in stock trading.