A-Z Tips: Basic Things About Stocks for Beginners

In recent years, the stock market has become a focal point for the Vietnamese investment community. When production and commerce face difficulties, profit opportunities from stocks increasingly attract millions of investors. To participate effectively, new investors (F0) need to understand the basics of stocks — from definitions and classifications to trading rules.

What Are Stocks? Essential Basics to Know

According to the Securities Law No. 70/2006/QH1, stocks are documents confirming the legal rights and benefits of the owner regarding assets or ownership interests of the issuing organization.

Stocks include the following main types:

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

Shares - The Most Common Type of Security

Shares are the most well-known securities, confirming ownership of a part of a company/business. There are two main types:

• Common shares: linked to business results, with variable dividends
• Preferred shares: including dividend-preferred shares and voting-preferred shares

Shares can be issued in paper form (clearly stating the company’s name, par value, year of issuance) or electronically (data stored on computer systems).

Bonds - A Business Loan Instrument

Bonds are securities confirming the rights of the holder and the issuer’s obligation to repay debt. The issuer commits to paying both principal and interest within a specified period.

Bond buyers will receive fixed interest, independent of the company’s operational results, and do not have voting rights.

Fund Certificates - Group Investment

Fund certificates confirm the ownership rights of investors when contributing capital to a public investment fund. This fund is contributed to by many investors pooling capital to jointly invest in securities or other assets to earn profits.

Derivative Securities - Advanced Instruments

Derivative securities are contracts defining the rights and obligations of the parties. Their value depends on the underlying asset (securities, indices…). Types include options, futures, and forward contracts.

Distinct features:

• Traded on derivatives markets
• No limit on issuance volume
• Settlement at a specific future time
• Profits are determined daily

Warrants, Stock Purchase Rights, Depository Certificates

Warrants with collateral are securities issued by securities companies, usually accompanied by a code of the underlying security, allowing investors to buy the underlying security at a price set at maturity.

Stock purchase rights allow shareholders to prioritize buying additional shares at a lower price than the market.

Depository certificates are created when foreign stocks are deposited into a depository bank, which then issues certificates based on the corresponding ratio.

Stock Market - The Trading Venue

Concept of the Stock Market

The stock market (stock exchange) is where investors buy and sell stocks at the trading floor or through brokerage firms.

It is divided into two types:

• Primary market: where organizations/funds raise capital by issuing stocks for the first time
• Secondary market: where stocks issued initially are traded among investors; this only changes ownership rights without generating new money

The Important Role of the Stock Market

The stock market plays a vital role in the economy:

• Promotes the development of joint-stock companies through information dissemination, valuation, securities distribution, and attracting investor capital
• Provides criteria to evaluate business development activities
• Highly liquid
• Helps the government and businesses attract foreign capital

Basic Concepts and Terms in Stocks

Stock Market Terminology

• Listed company: a company offering shares on the market
• IPO (Initial Public Offering): issuing securities for the first time
• Market capitalization: total value of a company with outstanding shares
• Offering price: the initial listing price of the stock
• Portfolio of securities: all stock codes in an investor’s account
• Yield/profit ratio: total dividends and profits received by investors
• Annual report: the company’s report published annually
• Alpha coefficient: return rate adjusted for risk
• Beta coefficient: a measure of stock or portfolio risk
• Price to Book ratio: compares market price to book value
• Bankruptcy risk coefficient: helps assess risk and predict bankruptcy
• Dividend yield ratio: shows the relationship between received dividends and stock value

Trading Order Terms

• Limit order LO: buy/sell stocks at a specified or better price
• Market order MP: buy at the lowest current selling price or sell at the highest current bid
• ATO order: trade at opening price, before 9:15 (only on Ho Chi Minh Stock Exchange)
• ATC order: trade at closing price at 14:45 (on Hanoi and Ho Chi Minh Stock Exchanges)
• PLO order: buy/sell at the closing price after the ATC session (only on Hanoi Stock Exchange)
• Break: stock price surges significantly above a certain price range
• Matching price: price determined during market transactions
• Long/Short: trading bullish/bearish in derivatives
• Stock filtering: using criteria like upward momentum, accumulation, market cap, liquidity to find suitable stocks
• Safety margin: difference between market price and intrinsic value

Stock Price Terms

• Par value: face value printed on bonds/stocks at issuance
• Market price: buying/selling price on the trading market
• Listing price: initial listing price during the first trading session
• Matching price: price at which buy/sell orders are matched
• Opening price: previous session’s closing price
• Floor price: lowest price during a trading session
• Ceiling price: highest price during a trading session
• Settlement date: T+3 (3 days after matching); proceeds or stocks are transferred after 3 days
• Price trend: the market has three types — uptrend (Uptrend), downtrend (Downtrend), sideways (Sideway)

Basic Trading Principles

• Index (): statistics based on a list of stocks according to a certain ratio; for example, Vnindex represents all stocks on HOSE, Vn30 is an index of the top 30 market cap stocks
• Margin: margin trading - investors borrow money from securities companies to buy stocks
• Trading volume: number of stocks traded within a certain period
• Short selling: selling securities not owned by borrowing from others and buying back later
• Price fluctuation: on HOSE ±7%, on HNX ±10% compared to reference price

Market Participants

• Issuer: issues securities to raise capital
• Individual investor: people with capital wanting to earn additional income
• Institutional investor: large-volume traders (investment companies, insurance, finance, banks)
• Securities company: supports management, consulting, brokerage, underwriting
• Related organizations: State Securities Commission, stock exchanges, credit rating agencies

Market Operating Principles

Investors should understand 5 basic principles:

• Competition: issuers compete to sell securities, investors compete to buy at good prices
• Fairness: everyone must comply with common regulations
• Transparency: issuers regularly provide full and transparent information about securities
• Intermediaries: transactions between investors and issuers are conducted through securities companies
• Centralization: transactions only occur on stock exchanges, under strict government supervision

Trading Hours

Ho Chi Minh, Hanoi, and UPCOM exchanges operate from 9:00 to 11:30 in the morning and 13:00 to 15:00 in the afternoon, Monday to Friday (excluding holidays).

How to Read Stock Price Tables

The most important part for beginners:

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

How to Buy and Sell Stocks

Investors can place orders in two ways:

• Manually via trading software
• Through a brokerage company

How to Open a Securities Account

Before opening an account, investors should choose a securities company with suitable transaction fees, paying attention to margin ratios and interest rates on margin loans.

Accounts can be opened directly at securities firms, banks, or brokerage companies. Required information includes: fixed address, email, phone number, bank account.

After opening, the company provides an account number and instructions for depositing funds. An account with at least 500,000 VND allows investors to start trading.

Important Notes When Trading Stocks

Vietnam has 3 main exchanges: HOSE (Ho Chi Minh City), HNX (Hanoi), Upcom (Unlisted Public Company Market). Additionally, many international exchanges operate in Vietnam with different advantages and disadvantages.

Regardless of the exchange chosen, investors should select reputable exchanges with long-standing operation histories, managed by domestic or international securities authorities.

Beginners should master 3 basic orders: ATO, ATC, LO. Then, they can learn additional orders like MP, MTL, MOK, MAK.

Conclusion

The basic knowledge about stocks outlined here is the essential foundation for any beginner participating in the market. To earn profits, investors need to learn more about knowledge and experience, maintain a calm mindset to be alert to market fluctuations. Only through perseverance, continuous learning, and risk management can long-term success be achieved in the stock market.