6 Effective Stock & Share Investment Methods - A Guide for Beginners

Although the stock market is one of the leading investment channels, many investors still do not fully understand how to trade stocks effectively in Vietnam. This article will help you better understand basic stock concepts, different types of securities, and the advantages and disadvantages of each.

What Are Stocks?

(Stocks) are financial products with value that owners can buy and sell on the market. Stocks can be in paper certificates, electronic form, or ledger entries, confirming the legal rights of the owner with respect to the issuer.

Stocks are traded on separate markets - stock exchanges. Additionally, stocks serve as the foundation for other derivative financial products such as indices, futures contracts, and exchange-traded funds.

Because stock prices constantly fluctuate according to the market, stocks are an important investment channel that can yield higher profits compared to traditional investment forms.

6 Popular Ways to Trade Stocks Online in Vietnam

The Vietnamese stock market currently offers a variety of stocks and derivative financial products. Here are 6 common investment methods you can choose from:

1. Initial Public Offering (IPO)(

Concept: An IPO )Initial Public Offering( is a type of stock issued by a company to the public for the first time to raise capital. These are common stocks, usually issued in certificate form. Owners enjoy the usual rights of the company.

Advantages:

• Potential for significant long-term growth
• Purchase price is often low, with high profit potential
• Transparent and publicly disclosed stock prices

Disadvantages:

• Very difficult to buy stocks at the IPO moment
• High volatility, higher risk than regular stocks

) 2. Single Stocks###

Concept: Single stocks allow shareholders to confirm ownership of a part of the company. There are two types: common stocks and preferred stocks.

Shareholders owning common stocks have the right to participate in shareholder meetings, vote on decisions, and run for the board of directors. However, they cannot withdraw capital, only transfer their shares.

Shareholders owning preferred stocks receive benefits such as prepayment, lower face value, but do not have voting rights or the right to run for the board.

Advantages:

• Reduce asset management costs
• High long-term profits compared to other investment channels (gold, silver)
• Full control over stock selection and trading timing
• High liquidity, easy to buy and sell on the exchange

Disadvantages:

• Difficult to diversify the investment portfolio
• Large capital required for diversification
• Time-consuming research and management
• Susceptible to personal emotions, leading to poor decisions

3. Stock Index(

Concept: A stock index is a collection of many stocks or bonds representing a specific segment. For example, VN30 includes the 30 strongest stocks in Vietnam )accounting for 80% of market capitalization(, listed on HoSE. Globally, S&P 500 includes the 500 largest US stocks )accounting for 75-80% of market capitalization( on NYSE, NASDAQ. DJIA )Dow Jones Industrial Average( consists of 30 top stocks, calculated as a weighted average.

Advantages:

• Effective diversification - buying an index means buying many stocks
• Reduces risk from market fluctuations in long-term investing
• Cost savings due to fewer buy-sell transactions
• Saves time and effort compared to selecting individual stocks

Disadvantages:

• Cannot generate super high profits because the index basket may contain weak companies, dragging the index down

) 4. Exchange-Traded Fund (ETF)###

Concept: An ETF (Exchange-Traded Fund) is an investment fund holding many underlying assets. You can buy and sell ETF shares similarly to trading company stocks. Some stock indices are also ETFs, such as S&P 500, DJIA.

Advantages:

• Effective diversification
• Easy to trade, low costs, dividend payments
• Some ETFs can be traded with Options (Options) similar to Forex

Disadvantages:

• Commissions vary depending on the trading platform
• Low trading volume can lead to high bid-ask spreads
• Some ETFs are heavily taxed

( 5. Stock Index Futures)

Concept: Stock index futures are derivative financial contracts where the buyer and seller agree on a future price of an index. At maturity, the seller must sell at the predetermined price, regardless of market price fluctuations. In Vietnam, index futures follow VN30 with different expiration months ###January, February, March…(.

Advantages:

• Can short sell without owning stocks
• Use leverage to increase profits
• Similar trading to Forex, applicable to various investment strategies

Disadvantages:

• Large lot sizes, difficult for small capital investors
• Continuous monitoring of the portfolio required
• Complex trading methods for beginners

) 6. Stock CFDs(

Concept: Stock CFD )Contract For Difference### is a trading style where investors do not buy the underlying asset but instead buy a contract with the provider. Unlike actual stock trading, when buying Stock CFDs, you can use high leverage to increase profits.

Advantages:

• High leverage - access larger positions with less capital
• 24-hour trading, global tools
• Instant, continuous intra-day trading
• Low margin requirements

Disadvantages:

• Potential for losing more money than the initial investment if leverage is misused
• CFD owners have fewer rights than common stocks (voting rights, candidacy rights)

Important Terms When Investing in Stocks

Bonus Shares: A method of raising capital by splitting stocks. For example, 1 stock with a face value of 100,000 VND is split into 2 stocks with a face value of 50,000 VND.

Treasury Shares: The issuing company repurchases its own shares from the market to reduce the number of outstanding shares, thereby decreasing dividend payouts.

ESOP Shares: Preferred shares issued to employees at a lower price to retain talent.

OTC Stocks: Stocks not listed on an exchange. Their value can be inflated compared to actual worth.

Bluechip Stocks: Stocks of leading, stable companies with growing finances. For example, stocks in the VN30, HNX30 baskets.

Penny Stocks: Stocks with very low prices, high volatility issued by small companies. They have high profit potential but also high risk.

Defensive Stocks: Stocks that operate stably with low risk. Sectors like electricity, water, pharmaceuticals are considered defensive stocks.

Derivative Financial Instruments: Including stock CFDs, futures contracts, indices. These are more flexible, with a much larger market, can use leverage, trade 24/7, and apply various investment strategies.

Starting Your Stock Investment Journey

To make money from stock investing, you need to spend time learning how to trade stocks, understanding technical analysis, keeping up with market trends, and accumulating practical trading experience.

Learning and practicing trading skills is a long-term process. Start with basic knowledge, master how to trade stocks effectively, and gradually build an investment strategy aligned with your goals and capabilities.