From Basic to Advanced: Stock Market Guide for Beginners

In recent years, the stock market has become a highlight of the economy, especially when traditional manufacturing activities face difficulties. Millions of investors have shifted their focus to this sector to seek profit opportunities. If you are one of the newcomers to this market, mastering basic stock market knowledge will help you understand the rules of the game and build reasonable trading strategies.

What Is the Stock Market? Core Concepts

According to the Securities Law No. 70/2006/QH1, securities are documents or certificates confirming the legal rights of the owner regarding assets or the capital of the issuing organization. In other words, they are financial tools that help businesses raise capital and give investors the opportunity to participate in the growth of those organizations.

Types of securities include:

• 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 Investment Tool

Shares are the most widely used securities in the market. They confirm ownership of a part of the capital of the issuing company or enterprise. There are two main types:

Common shares: Linked to the company’s business results, with no fixed dividend value.

Preferred shares: Including preferred dividend shares and voting preferred shares, offering different benefits compared to common shares.

Shares can exist in paper form with the company’s name, face value, and issuance year, or electronically with all information stored in a computer system.

Bonds - A Tool for Cautious Investors

Bonds (or debt certificates) are securities confirming the rights of the owner and the issuer’s obligation to repay the debt. Simply put, this is a borrowing form where the issuer commits to paying both principal and interest within a certain period.

Bond buyers will receive a fixed interest rate, regardless of how the borrowed capital is used, but they do not have rights to participate in management of the funds.

Fund Certificates - Collective Investment Opportunities

Fund certificates are proof of ownership when investors contribute capital to a public fund. A public fund is an investment fund where many investors pool their capital to invest in securities or other assets to generate shared profits.

When you decide to invest in a public fund of an organization, you will need to purchase fund certificates to confirm your ownership rights.

Derivative Securities - Advanced Tools

Derivative securities are contracts that specify the rights and obligations of the involved parties. Their value depends on one or more underlying assets such as securities or indices.

Main types of contracts include:

• Options contracts
• Futures contracts
• Forward contracts

Derivatives differ from underlying securities in aspects such as: traded on derivative markets, unlimited issuance volume, settlement at a specific future time, and daily profit/loss calculation.

Warrants - Secured Rights

Warrants are secured securities issued by securities companies, backed by assets. Each warrant usually comes with a code linked to an underlying security, allowing the holder to buy the underlying security at a predetermined price on the maturity date.

Rights to Purchase Shares - Priority Opportunities

These are securities issued by companies in tranches to give existing shareholders the right to buy additional shares at a lower price than the market listing. Each existing share will come with a purchase right, and the number of rights will change with each issuance.

Depository Certificates - International Trading Bridge

Depository certificates are created when foreign company shares are deposited into a depository bank. The bank then issues depository certificates, with quantity and price depending on the ratio between the intended issuance and the underlying shares.

Understanding the Stock Market

What Is the Stock Market?

The stock market (or stock exchange) is where investors conduct buying and selling transactions of securities at the trading floor or through brokerage firms.

This market is divided into two main types:

Primary market: Where organizations or investment funds raise capital by issuing securities for the first time.

Secondary market: After issuance in the primary market, securities are traded among investors. These transactions do not generate new money but only transfer ownership rights between parties.

The Important Role of the Stock Market

The stock market plays a crucial role in the national economy:

• Promoting business development: Through information dissemination, company valuation, underwriting, and distribution of securities, the market attracts capital from millions of investors.

• Providing evaluation criteria: Investors have tools to monitor and assess the development activities of companies.

• High liquidity: Allowing securities to be quickly converted into cash.

• Attracting foreign capital: Helping the government and companies issue bonds and shares to mobilize international funds.

Key Concepts and Terms to Know

Stock Market Terminology

• Listed company: A company that offers shares to the market and is listed on the stock exchange.

• IPO (Initial Public Offering): The first issuance of securities.

• Market capitalization: The total value of a company based on its outstanding shares.

• Offer price: The initial listing price of shares on the market.

• Securities portfolio: The collection of stock codes in an investor’s account.

• Yield/Profit rate: The total dividends received by investors from holding shares.

• Annual report: The report published annually by the issuing company.

• Alpha coefficient: Return rate adjusted for risk.

• Beta coefficient: A measure of the risk level of a stock or portfolio.

• Price to Book Ratio (Market price to book value ratio): The comparison between market price and book value of a stock.

• Bankruptcy risk ratio: Helps investors assess risk and forecast the company’s potential for bankruptcy.

• Dividend yield ratio: Shows 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: An order to determine the opening price, applied before 9:15 AM.

• ATC order: An order to determine the closing price at 2:45 PM.

• PLO order: Buy/sell order at the closing price after the ATC session ends.

• Break: Indicates a sharp increase in stock price well above the previous price range.

• Matching price: The price set by investors when trading on the market.

• Long (buy)/Short (sell): Derivative trading aiming to profit from upward or downward trends.

• Stock filtering: Using criteria such as upward momentum, accumulation, market capitalization, or liquidity to find qualifying stocks.

• Safety margin: The difference between the market price and the intrinsic value of a stock.

Stock Price Terminology

• Par value: The face value printed on bonds or stocks at issuance.

• Market price: The buying/selling price of a stock on the trading market.

• Listing price: The initial price of a stock listed on the market during the first trading session.

• Opening price: The closing price from the previous trading day.

• Floor price: The lowest price of a stock during a trading session.

• Ceiling price: The highest price of a stock during a trading session.

• Settlement date: Usually T+3 (3 working days after order matching), excluding holidays. If buying, funds are transferred after 3 days; if selling, proceeds are transferred after 3 days.

• Price trend: The market has three types of trends: up (Uptrend), down (Downtrend), or sideways (Sideway).

Basic Trading Definitions

• Index (Stock index): A statistical measure based on a list of stocks according to a certain ratio. For example, Vnindex represents all stocks on HOSE, while Vn30 is an index of the top 30 stocks by market cap and liquidity.

• Margin (Margin trading): A method where investors borrow money from securities companies to buy stocks.

• Trading volume: The number of shares traded within a certain period, such as a day.

• Short selling: Selling securities that the investor does not own by borrowing from others, then buying back later.

• Price fluctuation: On HOSE, the price fluctuation limit is +/- 7%, while on HNX it is +/- 10% compared to the reference price from the previous trading session.

Market Participants

• Issuers: Organizations issuing securities to raise capital.

• Investors: Individuals or entities engaging in buying and selling securities. Includes retail investors (individuals with capital seeking additional income) and institutional investors (investment companies, insurance, financial institutions, commercial banks with large capital).

• Securities companies: Entities supporting management, consulting, brokerage, and underwriting.

• Related organizations: State Securities Commission, stock exchanges, credit rating agencies, securities computing service companies.

Operating Principles of the Market

Five fundamental principles that investors need to understand:

• Principle of competition: Issuers compete to sell securities; investors compete to buy at favorable prices and high profits.

• Principle of fairness: All participants must comply with common regulations.

• Principle of transparency: Issuers are obliged to regularly, openly, and fully provide information about the securities they issue.

• Principle of intermediaries: Securities transactions between investors and issuers are conducted through securities companies.

• Principle of centralization: Securities transactions are only conducted on the stock exchange and are closely monitored by state regulatory agencies.

Trading Hours

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

How to Read Stock Price Tables

The price table is the most important part that new investors need to understand. How to interpret colors:

• Green: Price increased compared to the reference price.
• Red: Price decreased compared to the reference price.
• Yellow: Price remains the same as the reference price.

Buying and Selling Stocks

Investors can place buy/sell orders in two ways:

• Manually entering orders via trading software.
• Placing orders through a brokerage firm.

How to Open a Securities Account

Before opening a securities account, investors should research and choose a securities company with suitable transaction fees. Also, pay attention to margin ratios and interest rates applied by the company.

Investors can open accounts directly at securities companies, banks, or through brokerage firms. Required information includes fixed address, email, frequently used phone number, and bank account.

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

Important Notes When Trading

Regarding choosing a trading platform:

In Vietnam, there are three main stock exchanges: HOSE (Ho Chi Minh City), HNX (Hanoi), and Upcom (the trading point for public companies not yet listed). Additionally, many international exchanges operate in Vietnam, each with different advantages and disadvantages.

Regardless of the platform chosen, you must select a reputable exchange with a long operational history, managed by domestic securities authorities or international securities regulators (ASIC, FCA, SEC, CySEC,…).

Regarding trading orders:

New investors should first understand the three basic orders: ATO, ATC, LO. Then, they can learn more advanced continuous orders such as MP, MTL, MOK, MAK.

Conclusion

The basic stock market knowledge outlined above will help new investors understand the rules and initially shape their trading strategies. To truly profit from the stock market, you need to continue learning more knowledge and gaining experience, which will help you stay alert to market fluctuations and the opportunities it offers.