From A to Z: Master the fundamentals to start your journey into understanding stocks

Why Should You Learn About Stocks?

In recent years, the economic landscape has changed rapidly, with production and trade activities facing many challenges. Therefore, stock investment has become a popular way to expand profit opportunities, attracting millions of people. In 2022 and the following years, this market continues to explode, especially drawing new investors (F0). However, to participate effectively, you need to thoroughly understand stocks—from basic concepts to how the market operates.

What Are Stocks? Definitions and Classifications

Basic Concepts

According to the Securities Law No. 70/2006/QH1, stocks are defined as documents or electronic certificates confirming the lawful rights and interests of the owner regarding assets or ownership of the issuing organization. This is not an abstract concept; it has real value and can be traded on the market.

Stocks include various forms:

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

Shares - The Most Common Investment Tool

Shares are the most widely known securities. They confirm ownership of a portion of a company’s or enterprise’s capital. There are two main types:

Common Shares: linked to business results, dividends are not predetermined. Preferred Shares: include preferred dividends (investors receive priority dividends) and voting preferred shares.

Shares can be issued in paper form (named, with face value, issuance year) or electronically (stored on computer systems).

Bonds - Loan Instruments

Bonds (debt securities) are securities confirming the rights of the holder and the debt repayment obligation of the issuer (company, organization, government). Essentially, bonds are a borrowing method where the issuer commits to paying both principal and interest within a specified period.

Important difference: bondholders receive fixed interest, regardless of the issuer’s business results, and do not have management rights.

Fund Certificates - Collective Investment

Fund certificates are securities confirming ownership when investors contribute capital to a public investment fund. This fund is contributed to by many investors to jointly invest in securities or other assets for profit. When investing in a fund, you must buy fund certificates to confirm your contribution.

Derivative Securities - Advanced Tools

According to the 2019 Securities Law, derivative securities are contracts that specify the rights and obligations of the parties. Their value depends on one or more underlying assets (securities, indices…). Types include options, futures, and forward contracts.

Features: traded on derivatives markets, unlimited issuance volume, settlement in the future, daily profit/loss calculation.

Warrants and Share Purchase Rights

Secured Warrants: securities issued by securities companies with collateral assets. Each warrant usually accompanies an underlying security code, allowing investors the right to buy the underlying security at a set price on the maturity date.

Share Purchase Rights: issued by companies in tranches to give priority to existing shareholders to buy additional shares at a lower price than the listed price. Each existing share comes with a purchase right.

Deposit Certificates

Deposit certificates are created when shares of foreign companies are deposited into a depository bank. The bank issues deposit certificates based on the number and price proportional to the underlying shares.

How Does the Stock Market Operate?

Market Concept

The stock market (or stock exchange) is where investors buy and sell securities at trading centers or through brokerage firms. The market is divided into two types:

Primary Market: where organizations or funds raise capital by issuing shares for the first time (IPO - Initial Public Offering).

Secondary Market: where previously issued shares are traded among investors. These transactions do not generate new money but only transfer ownership between buyers and sellers.

The Important Role of the Stock Market

The stock market plays a crucial role in the economy:

• Promoting Business Development: providing information, valuing companies, attracting capital from investors (fundraising).
• Providing Evaluation Criteria: helping investors monitor and assess company growth.
• High Liquidity: enabling easy buying and selling of assets.
• Attracting Foreign Capital: helping the government and companies issue bonds and shares to raise international funds.

Essential Terms You Cannot Ignore

Market Concepts

• Listed Company: a company that offers its shares on the (listed on the stock exchange).
• Market Capitalization: the total value of a company based on the number of shares issued.
• Offering Price: the initial listing price of shares.
• Stock Portfolio: the collection of stock codes in an investor’s account.
• Yield/Profit Ratio: total dividends minus the profit received by investors.
• Annual Report: the yearly report published by the issuing company.
• Alpha Coefficient: return adjusted for risk.
• Beta Coefficient: a measure of the risk of a stock or portfolio.
• Price to Book Ratio: compares the market price to the book value of a stock.
• Dividend Yield: the relationship between dividends and stock price.

Trading Order Types

• Limit Order (LO): buy/sell at a specified or better price.
• Market Order (MP): buy at the lowest selling price or sell at the highest current price.
• ATO (At The Open): trading at opening price before 9:15 AM (applies to Ho Chi Minh Stock Exchange).
• ATC (At The Close): trading at closing price at 2:45 PM (applies to both exchanges).
• PLO (Price Limit Order): buy/sell at the closing price after the ATC session (only Hanoi Stock Exchange).
• Break: a sharp increase in stock price beyond a certain price range.
• Long/Short: trading bullish or bearish on derivatives.
• Stock Screening: using criteria such as upward momentum, accumulation, market cap to find suitable stocks.

Price Types

• Face Value: the amount printed on the stock at issuance.
• Market Price: the buying/selling price in the trading market.
• Listing Price: the initial price when the stock is listed.
• Matching Price: the price at which buy/sell orders are matched.
• Opening Price: the previous session’s closing price.
• Floor Price / Ceiling Price: the lowest/highest price in a trading session.
• Settlement Date: T+3 (3 days after matching, excluding holidays).
• Price Trend: Uptrend (rising), Downtrend (falling), Sideway (horizontal).

Concepts to Understand Before Trading

• Index (Index): statistics based on a list of stocks according to certain ratios (e.g., VNIndex representing the entire HOSE, VN30 being the index of 30 largest-cap stocks).
• Margin/Leverage Trading: investors borrow money from securities companies to buy stocks.
• Trading Volume: the number of shares traded within a period (e.g., one day).
• Short Selling: selling securities you do not own by borrowing from others and repurchasing later.
• Price Fluctuation: the degree of price change relative to a reference level (HOSE is +/- 7%, HNX is +/- 10%).

Participants in the Stock Market

Issuer: an organization issuing securities to raise capital.

Investor: the person executing buy/sell transactions. Divided into individual investors (with personal capital seeking additional income) and institutional investors (investment firms, insurance, finance, banks with large capital).

Securities Company: supports management, consulting, brokerage, underwriting.

Related Organizations: State Securities Commission, stock exchanges, credit rating agencies, technology service providers.

Core Principles of the Stock Market

Five principles investors should remember:

1. Competition Principle: issuers compete to sell securities, investors compete to buy at good prices and high profits.

2. Fairness Principle: all market participants must comply with common regulations.

3. Transparency Principle: issuers are obliged to regularly, publicly, and fully disclose information about securities.

4. Intermediary Principle: transactions between investors and issuers are conducted through securities companies.

5. Centralized Trading Principle: transactions only occur on stock exchanges, which are closely monitored by government agencies.

Stock Trading Schedule

The Ho Chi Minh City, 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 weekends and holidays).

How to Read Stock Price Tables

Price tables are essential for new investors to understand. Color indicators:

• Green: price increase compared to reference price.
• Red: price decrease compared to reference price.
• Yellow: price equal to reference price.

Buying and Selling Stocks: Two Methods

Investors can trade via two methods:

• Manually placing orders on the trading software of the securities company.
• Placing orders through a broker (consultant staff of the company).

How to Open a Stock Trading Account

Preparation Before Opening an Account

The first step is choosing a suitable securities company. You should compare:

• Transaction fees
• Margin ratio
• Margin interest rate
• Reputation and experience of the company

Account Opening Channels

You can open an account at:

• Directly at a securities company
• Commercial banks
• Partner brokerage firms

Information to Prepare

• Permanent address
• Contact email
• Regular phone number
• Bank account information

Next Steps

After opening an account, the company will provide an account number and deposit instructions. With a minimum balance of over 500,000 VND, you are ready to start trading stocks.

The Three Stock Exchanges in Vietnam

• HOSE (Ho Chi Minh City): main trading floor
• HNX (Hanoi): second largest trading floor
• UPCOM: trading point for unlisted public companies

Additionally, many international exchanges operate in Vietnam, each with its own advantages and disadvantages. Regardless of the exchange chosen, you must select a reputable unit with a long operational history, managed by domestic securities authorities or international securities regulators (ASIC, FCA, SEC, CySEC).

Important Tips for New Investors

When starting to learn about stocks, you should:

• Master the 3 basic orders: ATO, ATC, LO. Then, learn more about other orders like MP, MTL, MOK, MAK.
• Understand clearly how the exchange you choose operates.
• Regularly follow information about issuing companies.
• Avoid rushing into large investments without experience.

Summary

The above article summarizes fundamental knowledge about stocks for new investors. Learning about stocks is an important step to participate confidently and effectively in the market.

To succeed in stock investment, you need to continuously learn and accumulate experience. Understanding market fluctuations, grasping trends, and developing suitable investment strategies are the keys to achieving stable profits from the stock market.